By Jason Lange
WASHINGTON (Reuters) - U.S. consumer prices were flat in December, pointing to muted inflation pressures that should help give the Federal Reserve room to prop up the economy by staying on its ultra-easy monetary policy path.
The Labor Department said on Wednesday its Consumer Price Index was unchanged last month, held back by a drop in gasoline prices. The reading was in line with analysts' expectations in a Reuters poll.
Last month, the Fed said it would keep interest rates near zero at least until the jobless rate falls to 6.5 percent, as long as the central bank believes inflation will stay below 2.5 percent.
Wednesday's data reinforced the view that inflation will not hit the Fed's threshold anytime soon.
"This leaves Ben Bernanke and the Fed with a free hand to continue with ultra-accomodative monetary policy." said Michael Woolfolk, a currency strategist at BNY Mellon in New York.
Stock investors, however, appeared to shrug off the data. Prices for U.S. stock index futures slipped, with shares of Boeing set to weigh on the market after two Japanese airlines grounded their Dreamliner fleets.
To boost growth and get Americans back to work in the wake of the Great Recession, the Fed has kept interest rates near zero since late 2008 and has bought some $2.5 trillion in assets.
Some economists think steady improvement in the labor market could at least lead the Fed to curtail its asset-buying program by the end of this year.
Weak inflation helped consumers increase their purchasing power last month. Inflation-adjusted weekly earnings rose 0.6 percent, the Labor Department said in a separate report.
Gasoline prices fell 2.3 percent, marking the third straight monthly decline.
Away from gasoline and food, the cost of apparel fell 0.1 percent. New motor vehicle prices were flat.
Prices for used cars and trucks fell 0.4 percent, declining for a sixth straight month. Housing costs edged up, with owners' equivalent rent of primary residences rising 0.1 percent.
The Fed does not use CPI to target inflation, and instead uses an index released by the Commerce Department. The two indexes usually track one another quite closely.
By either measure, annual inflation remains below the Fed's 2 percent target.
In the 12 months to December the CPI increased 1.7 percent, the smallest increase since August. That compared to November's 1.8 percent rise.
"This supports the Fed's contention that inflation is mild and that inflation expectations should be stable," said Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
A measure of underlying inflation, which strips out volatile food and energy prices, edged up 0.1 percent in December, slightly less than expected.
In the 12 months to December, core CPI increased 1.9 percent after rising 1.9 percent in November.
The Fed's efforts to lower interest rates are helping many Americans buy homes, and housing is expected to provide a substantial boost to the economy this year.
The Mortgage Bankers Association said applications for U.S. home mortgages rose in the week ended January 11, the second straight week of gains.
(Additional reporting by Edward Krudy, Ellen Freilich and Wanfeng Zhou in New York; Editing by Andrea Ricci)
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