Consumer prices slipped 0.1 percent last month, pulled down by sharply lower gas prices and cheaper air fares, used cars, and mobile phone plans.
The consumer price index rose just 1.9 percent in December from a year earlier, the Labor Department said Friday, the first time it has fallen below 2 percent since August 2017.
Excluding the volatile energy and food categories, core prices rose 0.2 percent for the third month in a row. They rose 2.2 percent from a year ago for the second straight month.
The figures suggest that the healthy economy is not yet creating widespread inflation pressures. That gives the Federal Reserve more leeway in deciding whether to raise short-term interest rates. Fed Chair Jerome Powell has said the Fed can be “patient” regarding rate hikes this year.
Charles Evans, president of the Fed’s Chicago regional bank, said Wednesday that mild inflation data allows the Fed to “wait and carefully take stock of the incoming data and other developments” before deciding on future rate hikes.
Fed policymakers lifted short-term rates four times last year and have forecast two more hikes this year. Yet investors and some analysts think that slower U.S. and global growth this year, combined with low inflation, will keep the Fed from raising rates at all.
Gas prices plunged 7.5 percent in December, the most in almost three years. They have since fallen further: Gas prices averaged $2.24 a gallon nationwide on Friday, according to AAA, down from $2.41 a month ago. That reflects a steep drop in oil prices, which have tumbled partly over fears of weakness in the global economy.
Food costs rose 0.4 percent last month, the biggest increase in 4 ½ years. Fruit and vegetable prices jumped 1.7 percent while the cost of eating out rose 0.4 percent.
The cost of many goods was unchanged in December: Prices for clothes, shoes, and new cars were flat.