Consumer prices little changed as inflation recedes

, Bloomberg

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The cost of living was little changed in December, capping the third-smallest annual gain in the past decade, indicating U.S. inflation remains at bay.

The unchanged reading in the consumer-price index matched the median estimate of 83 economists surveyed by Bloomberg and followed a 0.3 percent drop the prior month, Labor Department data showed Wednesday in Washington. Costs rose 1.7 percent in 2012, down from a 3 percent increase in 2011.

Price increases will probably remain restrained as retailers like Target Corp. use discounts to attract customers and budget battles in Washington hurt confidence. Federal Reserve policymakers are likely to maintain unprecedented easing measures while inflation holds below their target level and absent further progress on reducing joblessness.

"There's nothing to worry about on the inflation front" so the Fed will continue easing measures, said Bricklin Dwyer, an economist at BNP Paribas in New York, who correctly projected the December price readings. "We're seeing weaker domestic demand playing into weaker price pressures."

Stock-index futures held earlier losses after the report. Bloomberg survey estimates for the consumer-price index ranged from a drop of 0.2 percent to an increase of 0.3 percent.

Decade Average

Consumer prices rose 2.4 percent on average over the past decade.

The core index, which excludes volatile food and energy costs, climbed 0.1 percent for the fifth time in the last six months. For 2012, core prices rose 1.9 percent compared with a 2.2 percent advance in 2011. Last year's gain matched the average increase over the past 10 years.

The Fed's preferred price measure, which is tied to consumer spending patterns, rose 1.4 percent in the 12 months to November, according to data from the Commerce Department.

Central bankers in December adopted a more flexible approach to their interest-rate outlook, saying borrowing costs will stay low "at least as long" as unemployment remains above 6.5 percent and if the Fed predicts inflation of no more than 2.5 percent one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8 percent in December and November.

Inflation Outlook

"For the next few years, it's unlikely that we're going to see inflation really push up above that 2 percent level," that is the Fed's longer-term goal, Daniel Silver, an economist at JPMorgan Chase & Co. in New York, said before the report.

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