US consumer prices increase as expected in December

By Lucie Mutikani

WASHINGTON, Jan 13 (Reuters) – U.S. consumer prices rose in December as distortions from the government shutdown that artificially lowered inflation in November eased, reinforcing expectations that the Federal Reserve would leave interest rates unchanged this month.

The consumer price index rose 0.3% last month, the Labor Department’s Bureau of Labor Statistics reported Tuesday. In the 12 months to December, the CPI rose 2.7%, matching November’s gain. Economists polled by Reuters had forecast a 0.3% rise in the CPI. The BLS estimates that the CPI rose 0.2% from September to November.

The 43-day shutdown prevented price collection for October, leading the BLS to use a carry-forward method to impute data, including rent data, to produce the November CPI report. Although November prices were collected, it was not until the second half of the month that retailers offered holiday discounts.

The carry-forward imputation method considered October prices unchanged. Drastic tariffs imposed by President Donald Trump have increased the prices of goods, creating an affordability challenge for households. High inflation has eroded Trump’s approval rating and will be a hot political topic this year as Trump and his fellow Republicans fight to retain control of the US Congress.

Excluding the volatile food and energy components, the CPI rose 0.2% in December. The so-called core CPI rose 2.6% year-on-year in December after increasing by the same margin in November. The BLS estimates that the core CPI rose 0.2% from September to November.

The Fed tracks price indexes for personal consumption expenditures to achieve its 2% inflation target.

The pick-up in consumer inflation follows news last week that the unemployment rate fell in December even as job growth was tepid. The US central bank is expected to keep its benchmark overnight interest rate in the range of 3.50% to 3.75% at its meeting on January 27-28.

An escalation in tensions between Fed Chairman Jerome Powell and Trump has left most economists not expecting a rate cut before Powell’s term ends in May. The Trump administration has opened a criminal investigation against Powell, which the Fed chief called a “pretext” to influence rates.

(Reporting by Lucia Mutikani; ‌Editing by Nick Zieminski and Chizu Nomiyama)