Inflation pressure on consumers ease

Inflation adjuster

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NEW YORK (CNNMoney.com) -- The pace of inflation slowed in December, according to a closely-watched government report Wednesday that showed price pressures in line with Wall Street expectations.

The Consumer Price Index, the government's key inflation reading, rose 0.3 percent in the month after a 0.8 percent jump in November. Economists surveyed by Briefing.com had forecast a 0.2 percent rise in December.

The rise in December left prices 4.1 percent above where they were 12 months earlier and marked the highest such jump for any December since 1990. Some wire service reports took that to mean inflation had risen the largest amount in 17 years. But the 12-month change in the latest reading was actually down from the 4.3 percent rise on that basis in November.

The CPI showed a full-year average increase of only 2.8 percent in 2007, down from the 3.2 percent rise in that measure in 2006 and the the lowest full-year gain since 2004.

The more closely-watched core CPI, which strips out volatile food and energy prices, rose 0.2 percent, which matched economists' forecasts after a 0.3 percent rise the previous month.

Core CPI posted a 12-month change of 2.4 percent, up from a 2.3 percent rise on that basis in November. That's important because the Federal Reserve is generally believed to want to see the 12-month change in core inflation readings remain between 1 percent and 2 percent, so this rise is a bit more outside the perceived comfort zone of central bankers. It's the largest change in the 12-month reading since March.

Still, investors buying fed funds options once again increased their bets that the central bank will cut rates ahead of its Jan. 30 meeting and again at that meeting.

Fed funds futures were pricing in a 48 percent chance of a total of three-quarters of a percentage point cut by the end of the month Wednesday following the report. That was below the odds of multiple cuts just before the 8:30 a.m. ET report, well ahead of the 40 percent chance of multiple cuts at the close of trading Tuesday.