US CPI points to soft inflation, could help Fed keep policy easy

WASHINGTON Wed Jan 16, 2013 1:30pm GMT

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WASHINGTON Jan 16 (Reuters) - U.S. consumer prices were flat in December, pointing to muted inflation pressures that should help give the Federal Reserve room to prop up the economy by staying on its ultra-easy monetary policy path.

The Labor Department said on Wednesday its Consumer Price Index was unchanged last month, held back by a drop in gasoline prices. The reading was in line with analysts' expectations in a Reuters poll.

Last month, the Fed said it would keep interest rates near zero at least until the jobless rate falls to 6.5 percent, as long as the central bank believes inflation will stay below 2.5 percent.

Wednesday's data will likely reinforce the view that inflation will not hit the Fed's threshold anytime soon.

To boost growth and get Americans back to work in the wake of the Great Recession, the Fed has kept interest rates near zero since late 2008 and has bought some $2.5 trillion in assets.

Some economists think steady improvement in the labor market could at least lead the Fed to curtail its asset-buying program by the end of this year.

The Fed does not use CPI to target inflation, and instead uses an index released by the Commerce Department. The two indexes usually track one another quite closely.

By either measure, annual inflation remains below the Fed's 2 percent target.

In the 12 months to December the CPI increased 1.7 percent, the smallest increase since August. That compared to November's 1.8 percent rise.

A measure of underlying inflation, which strips out volatile food and energy prices, edged up 0.1 percent in December, slightly less than expected.

Gasoline prices fell 2.3 percent, marking the third straight monthly decline.

Away from gasoline and food, the cost of apparel fell 0.1 percent. New motor vehicle prices were flat.

Prices for used cars and trucks fell 0.4 percent, declining for a sixth straight month. Housing costs edged up, with owners' equivalent rent of primary residences rising 0.1 percent.

In the 12 months to December, core CPI increased 1.9 percent after rising 1.9 percent in November.

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