Consumer prices up 0.4% in December, led by higher gas prices

U.S. consumer prices rose 0.4% in December, led by a sharp rise in gasoline prices.

Last month’s increase, the largest in four months, followed a 0.2% rise in November and no change at all in October, according to Labor Department numbers released Wednesday.

Inflation for all of 2020 rose a modest 1.4%, well below the Federal Reserve’s 2% target. Analysts believe inflation will remain subdued with the U.S. economy still unable to break out of a pandemic-induced downturn.

For December, energy prices rose 4%, with gasoline prices surging 8.4%. Even with that big jump, gasoline prices are 15.2% below where they were a year ago, when people were still commuting to work. Food costs rose 0.4% in December and are 3.9% higher than a year ago.

Core inflation, excluding volatile food and energy, rose a slight 0.1% last month, and just 1.6% over the past 12 months.

Inflation has been dormant over the past decade, a development that is allowing the Federal Reserve to keep interest rates at ultra-low levels during a surge in Covid-19 cases that has forced more business shutdowns at a time when millions are out of work.

Kathy Bostjancic, chief U.S. financial economist, said the benign inflation performance will likely mean that the Fed does not start raising interest rates until 2024.

“The Fed’s policy objectives signal that monetary policy will remain very accommodative for a considerable time,” Bostjanci said.