Jan 16, 2015 3 min read

WASHINGTON – U.S. consumer prices fell in December by the largest amount in six years, reflecting another big monthly decline in gas prices and providing further evidence of falling inflation pressures.

The Labor Department said Friday its consumer price index dropped 0.4 percent last month, the biggest one-month drop since December 2008. It was also the second straight monthly decline in prices with both months reflecting big decreases in gas prices, which were tumbling in recent months because of the global plunge in oil prices.

Core inflation, which excludes volatile food and energy, showed no increase in December, only the second time since 2010 that core prices did not rise.

“There is little inflation pressure in the United States or almost anywhere else for that matter,” said Jennifer Lee, senior economist at BMO Capita Markets.

For all of 2014, overall inflation was up just 0.8 percent, the smallest annual increase since 2008.

The 0.8 percent rise in prices for the year compared to a 1.5 percent increase in 2013 and a 1.7 percent increase in 2012. It was the smallest advance since prices edged up just 0.1 percent in 2008, the year the Great Recession threw the economy into reverse.

Core inflation rose 1.6 percent for the 12 months ending in December. Core prices were held back in December by a big 5 percent drop in airline fares.

Clothing prices fell 1.2 percent in December and new car prices dipped 0.1 percent. Paul Dales, senior U.S. economist at Capital Economics, said both of those declines may have been influenced by recent gains in the value of the dollar.

In addition to plunging global oil prices, the dollar was rising against other major currencies. That makes foreign-produced goods cheaper for U.S. consumers.

In December, gas prices fell 9.4 percent, the sixth consecutive monthly decline and the biggest drop since December 2008. The string of declines left gas 19.1 percent lower than a year ago. Food prices edged up 0.3 percent in December and are 3.4 percent higher than a year ago. Some of the gains this year reflect drought conditions in California and other states.

Oil, which was trading for more than $100 per barrel last summer, is now going for less than half that. The big plunge lowered prices at the pump to a nationwide average of $2.09, according to AAA, down from $2.55 a gallon just one month ago and $3.31 a year ago.

Even before the big plunge in oil prices, inflation was running levels well below the 2 percent the Federal Reserve sees as an optimal annual increase for prices. That gave the Fed leeway to keep a key interest rate at a record low to boost economic growth.

The Fed in December said it intended to be “patient” about raising interest rates, supporting the view among many economists the first rate increase will not occur until June at the earliest.

That view is not unanimous however. Other analysts point to strong job gains that pushed unemployment down to 5.6 percent in December, close to the Fed’s 5.2 percent to 5.5 percent target.