CPI falls 0.7% in December; core inflation flat as expected In another sign of the depth of the global economic slowdown, U.S. consumer prices increased just 0.1% in 2008, the smallest increase in 54 years, the Labor Department reported Friday. The consumer price index fell 0.7% in December, the third decline in a row, led by an 8.3% drop in energy prices and a 0.1% drop in food prices. Economists surveyed by MarketWatch expected a 0.8% decline. The CPI hasn't risen since the 0.8% gain in July. Since then, energy and commodity prices have plunged. Core prices - which exclude food and energy prices - were flat in December for the second straight month, as expected. The core CPI hasn't risen since September. Consumer prices were up 0.1% in 2008, the slowest annual inflation since prices fell 0.7% in 1954. The core CPI was up 1.8% in 2008, the lowest increase since 2003. If the CPI had fallen 0.8% in December as expected, prices would have been down for the year as a whole. A separate CPI for urban workers showed prices fell 0.5% in 2008, the biggest decline since 1949. With prices for urban workers down 0.9% in December and average weekly earnings down 0.3%, real (inflation-adjusted) weekly earnings rose 0.6%. In 2008, real earnings were up 2.9%. Most economists expect inflation to ease for much of this year as global demand weakens. Federal Reserve officials say they aren't especially concerned about deflation taking hold, and insist that they are ready to shrink the money supply once the economy begins to recover in order to prevent a bout of inflation next year. Details of CPI In December, prices were flat or falling in most major consumer categories, with health and education the exceptions. Energy prices fell 8.3%, including a 17% drop in gasoline prices and a 13% drop in fuel oil prices. Food prices fell 0.1%, led by declining prices for fruits, vegetables, dairy and meat. Shelter prices - which represent about a third of the CPI - were flat in December. Hotel fares fell 0.7%, rents rose 0.2%, and homeownership equivalent rent rose 0.1%. Apparel prices fell 0.9%. Transportation prices fell 4.4% on lower fuel bills. Airfares fell 1.2%. New vehicle prices fell 0.4%. Medical care prices increased 0.3%. Education and communication prices rose 0.3%, led by a 0.6% rise in tuition.

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