Consumer prices in U.S. little changed as inflation recedes

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% drop the prior month, Labor Department data showed today in Washington. Costs rose 1.7% in 2012, down from a 3% 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. The contract on the Standard & Poor’s 500 Index maturing in March declined 0.2% to 1,461.7 at 8:50 a.m. in New York as the World Bank trimmed its forecasts for global growth.

Bloomberg survey estimates for the consumer-price index ranged from a drop of 0.2% to an increase of 0.3%.

Decade Average

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

The core index, which excludes volatile food and energy costs, climbed 0.1% for the fifth time in the last six months. For 2012, core prices rose 1.9% compared with a 2.2% 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% 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% and if the Fed predicts inflation of no more than 2.5% one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8% in December and November.

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