CPI up 0.1% in December, 2009 Inflation Remains Tame

The consumer price index rose a scant 0.1% for December, and just 2.7% for 2009, the U.S. Labor Department announced Friday, providing only a few crumbs for the inflation hawks. Further, the core rate -- which excludes the often-volatile food and energy component -- also rose just 0.1% in December, and only 1.8% for all of 2009, which is well within the U.S. Federal Reserve's "comfort zone" for inflation.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% A Bloomberg News economists' survey had expected consumer prices to increase 0.1% and the core rate to rise 0.1% in December. Consumer prices rose 0.4% in November and the core rate was unchanged in November.

Used car prices soared 2.5%, apparel prices rose 0.4%, food prices rose 0.2%, gasoline increased 0.2%, shelter cost were unchanged, electricity was unchanged, medical care prices declined 0.1%, new vehicle prices fell 0.3%, and natural gas price fell 0.7%.

Most economists do not expect inflation to rise in the months ahead. They say the recession that has idled factory production and resulted in more than 7.6 million lay-offs has led to excess capacity in the commercial sector and slack in the labor force that will limit price and wage increases.

Also working against inflation: a reluctance by foreign manufacturers who export goods to the United States to raise prices amid intense competition. Many refuse to raise prices despite cost increases, for fear of being priced out of the lucrative, large U.S. market.

Separately, a key regional index pointed to faster growth in the U.S. economy. The Empire State Manufacturing Index soared to 15.9 in January from 2.55 in December, the New York Federal Reserve announced Friday. It was the sixth straight monthly improvement for the closely-watched index. A Bloomberg News economists survey had expected the index to rise to 13.0 in January.

Economic Analysis

This latest news from the Labor Department showed another tame, monthly, retail inflation report and it closes out a year of very little retail price pressure for the United States: inflation remains low in the world's largest economy. Further, it appears the deflation threat has lessened somewhat, as well. The key rate, the one the U.S. Federal Reserve monitors closely, is the core rate, and at 1.8% in 2009, it is roughly where the Fed wants it to be -- in the 1.3% to 1.8% range. That "comfort zone" core inflation will enable the Fed to continue its accommodative monetary policy for a longer period of time to stimulate the U.S. economy, without the fear of rising prices.

Bottom Line for investors: The U.S. economy registered low inflation in 2009, and will likely experience the same conditions in 2010.
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