WASHINGTON- US consumer prices increased solidly in December amid a surge in the cost of gasoline, though underlying inflation remained tame as the economy battled a raging COVID-19 pandemic that has weighed on the labor market and services industry.
Inflation could, however, temporarily accelerate this year as the government provides more money to stimulate the economy, and the consumer price declines early in the coronavirus crisis wash out of the calculations.
But that is unlikely to have an impact on the Federal Reserve, which has signaled it would tolerate higher prices after inflation persistently undershot the US central bank’s 2 percent target. The Fed has slashed interest rates to near zero and is pumping money into the economy through asset purchases.
Economists expect the ultraeasy monetary policy stance to last at least until 2024.
“We are likely to see a nearterm spike in inflation on base effects of a reopening economy in 2021 versus a calamitous period in 2020, but that will fade through the second half of 2021,” said James Knightley, chief international economist at ING in New York. “Longerterm inflation is going to be primarily driven by wage costs given this is a service sector economy.”
The consumer price index increased 0.4 percent last monthafter gaining 0.2 percent in November, the Labor Department said on Wednesday. An 8.4 percent jump in gasoline prices accounted for more than 60 percent of the increase in the CPI. Food prices also rebounded. The rise in the CPI was in line with economists’ expectations.