Consumer Prices Rise as Economy Continues to Improve

WASHINGTON (CN) – U.S. consumer prices rose moderately in December, driven up by rising energy costs. Meanwhile, the Federal Reserve says the economy is continuing to grow at a moderate rate.

The Bureau of Labor Statistics reported Wednesday that its consumer price index increased 0.3 percent last month, up from a 0.2 percent gain in November.

Government economists attributed the rise to energy prices which were up 1.5 percent in December, led by a 3 percent jump in gasoline pump prices.

The cost of shelter rose 0.3 percent, while food costs were unchanged for the fifth-straight month.

“Along with the shelter index, the indexes for motor vehicle insurance, medical care, education, airline fares, used cars and trucks, and new vehicles were among the indexes that increased,” the report states.

For all of 2016, prices were up 2.1 percent, compared to a 0.7 percent rise in 2015.

This was the largest annual increase since a 3 percent jump in 2011.

Medical care services was one of the fastest rising categories last year, rising by 3.9 percent over the past 12 months.

New car prices were up a slight 0.3 percent but used car prices were down 3.5 percent and clothing prices were down 0.1 percent over the past 12 months.

Core inflation, which excludes food and energy, was up 0.2 percent in December and 2.2 percent for the year.

Currently, the national price for a gallon of regular gasoline is $2.36 up from $1.89 a year ago, according to AAA’s Fuel Gauge.

The Federal Reserve said Wednesday that its survey of economic conditions around the country found that growth was modest or moderate in 10 of its 12 districts. That is an improvement from seven in the previous report. Growth was slight in the Cleveland district and largely unchanged in New York.

Fed officials will study the survey, known as the “Beige Book,” in preparation for their next meeting Jan. 31- Feb. 1. They will consider whether to raise short-term interest rates at that meeting, though few economists expect them to move so soon after their increase last month, which was the first in a year.

Manufacturers reported better sales or more orders in 10 of 12 districts, a solid turnaround from earlier this year. Cutbacks by oil and gas drillers had reduced demand for steel pipe and other factory goods, and weakness overseas cut into exports.

Consumers stepped up their shopping in most districts, the report found, though holiday sales disappointed in the Cleveland and Minneapolis regions. Businesses in some districts blamed online sales for reducing revenue for traditional brick-and-mortar retailers.

In an early sign of the impact of President-elect Donald Trump’s threats to impose tariffs on goods from Mexico, sales in parts of the Dallas district that are “peso-sensitive” fell, the survey found.

That suggests areas close to the U.S. border with Mexico have seen a decline in business as the value of Mexico’s currency, the peso, has fallen sharply against the dollar.

Separately, some health care companies in the San Francisco district said they had seen lower demand due to uncertainty over the future of the Obama administration’s health care reforms and future government spending policies.

With the unemployment rate low nationwide, businesses in most of the Fed’s districts said they were facing pressure to raise wages to keep and attract employees. Companies also said they are having trouble finding skilled workers, while in several districts businesses were struggling to fill less-skilled jobs.

Higher minimum wages lifted pay in many districts. One company in the San Francisco region said businesses were postponing hiring to offset the costs of higher minimums.

Companies also reported paying higher costs for raw materials, which could push up overall prices and lead to higher inflation. That could spur the Fed to raise short-term rates more quickly.

The Associated Press contributed to this report.

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