The United States reversed a disinflationary trend in December, as consumer prices in urban areas rose the most in any month since last summer.
America’s consumer price index increased 0.3 per cent last month from November, the biggest monthly increase since July, when the index advanced 0.5 per cent. Energy prices and shelter costs led the gain, the Labor Department said Thursday.
On the year, the index was 1.5-per-cent higher, pushing inflation to a level closer to the Federal Reserve’s target of 2 per cent. It will take more than one month of data to persuade the Fed that the threat of disinflation has passed, however. The U.S. central bank also relies on another measure of inflation for a more accurate read on prices.
After years of trying to contain inflation, central banks in advanced economies now are more concerned about there being too little upward pressure on costs. Christine Lagarde, the managing director of the International Monetary Fund, warned Wednesday that policy makers must be on their guard against deflation, and resist the urge to reverse stimulus measures prematurely.
“With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery,” Ms. Lagarde said in a speech in Washington. “If inflation is the genie, then deflation is the ogre that must be fought decisively.”
While on the surface falling prices appear a boon for consumers, economists worry deeply about the effect of lower returns to businesses on the broader economy. Without a satisfactory return, companies will stop hiring and reduce investments. Such a deflationary spiral would cause an economy to stagnate.
In the U.S., gasoline prices led an 2.1-per-cent increase in energy prices, the Labor Department said. The index of shelter costs gained 0.2 per cent on the month.
The annual gain of 1.5 per cent – which, unlike the monthly figures, isn’t seasonally adjusted – is noteworthy because recent annual gains had been so weak. The annual CPI increase was 1.1 per cent in October and 1.2 per cent in November.