Americans paid 0.1 more for goods and services in 2008, the least since 1954, the Labor Department in Washington said. Consumer prices fell 0.7 percent in December after dropping 1.7 percent the prior month. Excluding food and energy, costs were unchanged.
The worst holiday shopping season in at least four decades is forcing retailers such as Macy's Inc. and J.Crew Group Inc. to slash prices to lure customers. Today's report signals deflation, or a prolonged, harmful decline in prices, may become another risk facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama.
The core rate increased 1.8 percent last year, the smallest gain since 2003. Over the last three months, the rate is falling at an annual rate of 0.3 percent.
Energy costs dropped 8.3 percent last month and were down 21 percent for the year, the biggest decline since those records began in 1958. Gasoline prices decreased 43 percent in 2008, also the biggest decline on record going back to 1937.
Oil prices have fallen further this month. Crude oil futures on the New York Mercantile Exchange fell as low as $33 in intraday trading yesterday after averaging $42.04 in December.
Food prices, which account for about a fifth of the CPI, decreased 0.1 percent, led by a 2.4 percent drop in the cost of fruits and vegetables.
Prices for clothing, new automobiles, airline fares and recreation all decreased last month. For all of 2008, the 3.2 percent drop in new-car prices was the biggest since 1971.
Categories that normally increase saw smaller gains last year. The cost of medical care rose 2.6, the least since 1964.
Today's figures also showed wages increased 0.6 percent after adjusting for inflation, following an increase of 2.6 percent in November. They were up 2.9 percent for 2008.
Retail sales fell 2.7 percent in December, the sixth consecutive drop and extending the longest string of declines on record, the government said Jan. 14.
Prices are falling as the economy slows. The Fed's preferred inflation gauge, based on consumer spending and excluding food and fuel costs, will rise 1.2 percent this year, the smallest gain since 1962, according to economists surveyed by Bloomberg this month. The increase would be less than the long-term forecast of 1.3 percent to 1.7 percent that reflects policy makers' expectations for the level of inflation given ''appropriate'' monetary policy.
The deceleration, also called disinflation, is different from the persistent decline in costs that economists call deflation.
Consumers are looking for cheaper prices on necessities such as food and clothing amid the recession. Wal-Mart Stores Inc., the world's biggest retailer, climbed last year the most since 1999 as it started to sell $4 medicines and reduced prices on groceries, jeans and other basics attract more customers.
Still, slumping global economies forced the Bentonville, Arkansas-based company to cut its fourth-quarter profit forecast this month.
Other retailers are slashing prices to attract shoppers amid a deepening recession. Terry Lundgren, chief executive officer of Macy's, the second-largest department store, said he expects the company ``will continue to be promotional for a very long time'' after Macy's cut prices as much as 75 percent in a sale on Jan. 10.
Twenty-nine percent of U.S. shoppers are buying only essential or discounted items so far this year, compared with 18 percent a year ago, according to a survey of 1,000 U.S. consumers by America's Research Group and UBS AG released this week.
The consumer-price index is the last of three monthly price gauges from the Labor Department. The CPI is the government's broadest gauge of costs because it includes goods and services.
Prices paid to U.S...