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Consumer prices drop as falling oil costs push inflation lower

Consumer prices drop as falling oil costs push inflation lower
A car pulls up to a Shell Gas Station in Woodbridge, Va., on Jan. 5. (Saul Loeb / AFP/Getty Images)

Falling oil prices pushed the cost of living down in December, with the consumer price index declining for the first time in three months, the Labor Department said Wednesday.

The index, which measures a broad array of consumer purchases, declined 0.1% from the previous month.

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The drop was fueled by 2.4% decline in energy prices, including a 3.9% fall in gasoline costs. It was the fourth time in five months that gas prices fell as the cost of crude oil continued to tumble.

Food prices also fell for the second straight month. The 0.2% decline was driven by a 0.5% drop in grocery store prices, the largest since March.

Economists had expected consumer price growth to be flat for a second straight month.

Excluding volatile food and energy, prices rose 0.1% last month. It was the smallest increase in so-called core prices since August.

For the 12 months ended Dec. 31, consumer prices rose 0.7%. That was up from 0.5% for the 12 months ended Nov. 30.

Still, that was well below the Federal Reserve's annual target of 2% inflation. The Fed uses a different measure based on personal consumption expenditures, that has been running lower than the consumer price index.

Core prices increased 2.1% for the 12 months ended Dec. 31. That was the  highest for a 12-month period since July 2012, the Labor Department said.

Fed policymakers expressed their concern about low inflation last month as they raised a key interest rate for the first time in nearly a decade.

Fed officials said they expected the effects of falling oil prices to be temporary. But continued low inflation, along with recent financial market volatility, could lead central bank policymakers to hold off on additional interest rate hikes.

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