WASHINGTON, Jan 18: US consumer prices fell 0.1 per cent in December, as energy costs retreated, the government said on Wednesday, in a sign that inflation remains largely tame.

It was the second straight decline in the consumer price index (CPI), which fell 0.6 per cent in November.

The “core rate” excluding food and energy — seen by economists as a better indicator of inflation trends — rose 0.2 per cent in December.

Analysts had expected a 0.2 per cent rise in the headline CPI figure. The core rate was in line with most forecasts by private economists.

The report showed a 3.4 per cent rise in overall prices for calendar year 2005 after a 3.3 per cent rise the prior year. The core rate was up 2.2 per cent, the same as in 2004.

For December, overall energy prices fell 2.2 per cent, retracing some of the spike after two major hurricanes hit the United States and shut down much of the oil and gas operations in the Gulf of Mexico.

Within the energy sector, natural gas prices fell 3.5 per cent for the month, heating oil slipped 2.5 per cent, gasoline shed 2.6 percent and electricity costs dipped 0.6 per cent.

Economist Robert Brusca at FAO Economics said the report showed inflation largely in check over the past year.

“For a year of spiking energy prices, the core rise of 2.2 per cent is very subdued and the overall gain of 3.4 per cent was also held in check,” he said.

“Energy prices of all sorts rose by 17.1 per cent in 2005. That rise alone would have lifted the CPI pace for the year by nearly one and one-half percentage points. ... Inflation seems to have weathered the storm of rising energy prices.”

Others said high energy costs are likely to filter through to other prices.

“Core inflation is likely to increase slightly in the months ahead to reach a peak at 2.4 per cent due to rising pass-through,” said Marie-Pierre Ripert, economist at IXIS Corporate and Investment Bank.

“Nevertheless, the rise in core inflation should prove to remain limited by a weak pricing power and high businesses’ margins.”

Joel Naroff at Naroff Economic Advisors noted that core inflation is running slightly above the two per cent rate preferred by the Federal Reserve, which could mean more rate increases are in sight.

“Inflation continues along a moderate path that exceeds the Fed’s forecast but still doesn’t seem to worry the markets,” Naroff said.

“Tame is in the eye of the beholder. For me, core inflation is running at a moderate pace and is slowly accelerating. That is what I believe is driving the Fed to raise rates.”

Federal Reserve Governor Susan Bies, in a speech on Wednesday, said there was “only limited evidence, most of it anecdotal, of pass-through to consumer prices from the run-up in energy prices.”

Bies added, “The core inflation rate has stayed relatively low in recent months, as rapid gains in productivity have tended to offset cost increases.”—AFP