(MENAFN- Arab Times) WASHINGTON Jan 16 (Agencies): US consumer prices recorded their biggest decline in six years in December and a gauge of underlying inflation held steady which could bolster the case for delaying the first interest rate increase from the Federal Reserve. The Labor Department said on Friday its Consumer Price Index fell 0.4 percent last month the largest drop since December 2008 after sliding 0.3 percent in November. In the 12 months through December CPI increased 0.8 percent.
It was the weakest year-on-year reading since October 2009 and followed a 1.3 percent rise in November. Last month's readings were in line with expectations. US Treasury debt prices held gains while the dollar trimmed gains versus the euro and US stock index futures pared losses. While Fed officials have viewed the energy-driven inflation weakness as transitory a strong dollar is taming underlying price pressures which could cause some discomfort. The so-called core CPI which strips out food and energy was unchanged in December. It was only the second time since 2010 that it did not increase. The core CPI had nudged up 0.1 percent in November. Inflation is running below the Fed's 2 percent target despite a strengthening labor market and overall economy. A second report from the Fed showed factory output rose 0.3 percent last month rising for the fourth straight month. Darkening prospects for the global economy could also complicate policy decision for the US central bank. Many economists have been expecting the central bank to raise interest rates by June. However following December's surprise declines in retail sales and average hourly earnings rate futures have pushed back bets for a hike to the second half of the year. In the 12 months through December the core CPI rose 1.6 percent the smallest gain since February after increasing 1.7 percent in November. Meanwhile US factory production rose in December as manufacturers churned out more furniture computers and steel offsetting a small decline in autos. The Federal Reserve says factory production increased 0.3 percent last month the fourth straight gain. The increase comes after total output finally passed its pre-recession peak in November. The figures released Friday suggest that US manufacturers are adding modestly to economic growth even as their overseas markets shrink. Most analysts are counting on Americans' appetite for cars electronics and appliances to drive greater factory output. Overall industrial production which includes mining and utilities slipped 0.1 percent last month. Utility output plummeted 7.3 percent as an unseasonably warm December lowered demand for heating. Mining output which includes oil and gas production rose 2.2 percent after 2 months of declines. The Fed said that oil and gas extraction rose but the increase was limited by declines in new drilling. Overall industrial production increased in 2014 at the fastest pace in four years. That's pushed up the percentage of industrial capacity being used to 79.7 percent just 0.4 percentage points below its four-decade average. That suggests that manufacturers in order to ramp up production further will have to expand their plants which would give a solid boost to the economy. Otherwise higher demand will likely push up prices potentially leading to inflation. Recent reports on US manufacturing have been mixed but overall they point to modest growth. Factory activity expanded at a solid pace last month according to a survey by the Institute for Supply Management but much more slowly than in November. The survey found that measures of orders and production grew at a weaker pace. Meanwhile manufacturers in New York state expanded more quickly in January than the previous month according to a survey by the Federal Reserve Bank of New York released Thursday. Also Thursday another survey found manufacturers in Philadelphia grew more slowly. And orders for US manufactured goods fell in November the government said last week as factories saw less demand for industrial machinery and primary metals. US manufacturing is being challenged by a turbulent global economy. Japan has dipped into recession. Tepid growth has trapped much of Europe. China the world's industrial behemoth is trying to tighten credit and reform its opaque financial sector. The rising value of the dollar against other currencies makes US products more expensive abroad meaning that US manufacturers will need to rely on domestic demand for growth.
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