US inflation cools again, giving Fed room to downshift on rates

File image of a shopper holding groceries while waiting to checkout inside a grocery store in San Francisco, California, US

A key gauge of US inflation posted a moderate increase in December, adding to evidence that some price pressures are easing and offering the Federal Reserve room to slow the pace of interest-rate hikes next month.

Excluding food and energy, the consumer price index rose 0.3% last month and was up 5.7% from a year earlier, according to a Labor Department report Thursday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.

The overall CPI fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years. The measure was up 6.5% from a year earlier.

The median estimates in a Bloomberg survey of economists called for a 0.3% monthly advance in the core measure and a 0.1% drop in the overall gauge.