Consumers will have more money in their pockets to spend after the consumer price index saw its largest monthly drop in six years in December. According to government data released Friday, consumer prices in the United States fell 0.4 percent in December. This was the largest decline since the end of 2008. Over the full year, the consumer price index grew a paltry 0.8 percent, posting the second lowest calendar-year increase in the last 50 years.
The drop in the price of oil is seen as being the biggest reason for the drop in the consumer price index. The price of a barrel of oil has fallen from about $110 last year to lower than $50 per barrel today. Energy prices plunged 4.7 percent and gasoline prices fell 9.4 percent. The drop in prices at the pump has held down overall inflation for six straight months. Package delivery services, manufacturers and retailers are benefiting from lower transportation costs and are reflecting those lower costs in lower prices for consumers.
Excluding the categories of food and energy, which tend to have the most volatility, prices were unchanged in December. Last month, using the same metric, prices grew 0.1 percent. Economists were expecting similar growth in December, but were disappointed. The Federal Reserve wants to ensure that the economy does not devolve into deflation, which will weaken the economy with a sustained downward price trend.
Some categories of the economy saw prices increase in December. The cost of shelter increased 0.2 percent. Food prices rose 0.3 percent in the month, the largest increase since September. Prices for dairy products increased 0.6 percent, followed by fruit and vegetable prices with a 0.4 percent rise and prices for meats, poultry, fish and eggs rising 0.3 percent.
The price of apparel fell 1.2 percent, reflecting a weaker than expected result for retail sales in December. Airline fares saw a decrease of 5 percent and used car prices dropped 1.2 percent. Inflation-adjusted average hourly earnings rose 0.1 percent in December, according to a report from the government. Over the full year, real average hourly earnings rose 1 percent.