A drop in energy costs pulled US consumer prices down last month, but core inflation moved up modestly and housing starts surged, according to new data that bolstered expectations for a steady diet of interest-rate rises.
In addition, initial claims for state unemployment aid plunged by 48,000 last week, the biggest drop in more than three years - a further suggestion of the economy's fundamental strength.
The Consumer Price Index, a widely used inflation gauge, fell 0.1% in December, the Labour Department said. However, excluding food and energy, consumer prices moved up a moderate 0.2% for the third straight month.
The rise in the core index matched expectations in financial markets, which had expected overall prices to hold steady.
For the year as a whole, consumer prices advanced 3.3% as energy costs surged 16.6%, their biggest rise since an oil-induced spike in 1990. Core prices, in contrast, advanced at a more-moderate 2.2%. Nevertheless, the core price gain was the biggest since 2001 and double its pace in 2003.
The Fed has raised overnight borrowing costs to 2.25% from a 1958 low of 1% in five small steps and analysts said slowly rising core inflation offered ample reason for officials to stay the course.
The drop in the overall CPI reflected a 1.8% slide in energy costs. Fuel oil prices dropped 4.8% and the cost of gasoline fell 3.7%. Natural gas prices, however, built on earlier increases by climbing 1%. Food prices were unchanged, the department said.
Separately, the Commerce Department said housing starts shot up 10.9% last month, the biggest jump in more than seven years as groundbreaking activity increased across the nation. Housing starts rose to a seasonally adjusted annual rate of 2.004 million units in December, well ahead of analysts' predictions, from a 1.807 million pace a month earlier.
It was the largest gain since an 11.2% rise in September 1997. For the full year, housing starts rose 5.7% to a 1.953 million rate, the slowest pace since 2001.
