CPI: Inflation remains in check

NEW YORK (CNNMoney) -- Inflation overall held steady last month, as declining gas prices balanced out higher prices for other items.

The government's key measure of inflation, the Consumer Price Index, showed prices were virtually unchanged from November to December. It marked the second month in a row CPI has barely moved.

In the past 12 months, prices rose 3%, a slowdown from a 3.4% annual inflation rate in November. The numbers are seasonally adjusted.

Gas prices were a key driver, falling 2% during the month. That was enough to make up for slight price hikes on food, medical services and rents.

Food prices rose 0.2% in December. Medical care costs rose 0.4% and rents rose 0.3%.

But relief at the gas pump may prove only temporary. While gas prices did fall in December, they have since gone up in January amid stronger U.S. economic data and tension with Iran.

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"We already know that gas prices are starting to go back up in January, so I think a lot of analysts are mistakenly looking at the trend in headline inflation and seeing relief there," said Carl Riccadonna, senior U.S. economist at Deutsche Bank.

Compared to a year ago, gas prices were still up 9.9% in December.

Rising wages were an encouraging sign for consumers though. As the labor market improved in December, average hourly earnings rose 0.2%, outpacing inflation, the Labor Department said in a separate report.

The CPI comes from a broad measure of various goods, ranging from food and gas, to clothing, health care services and cars.

Since food and gas prices tend to be volatile, economists often like to exclude those elements.

That measure, called core CPI, showed prices rose 0.1% in December, and 2.2% year-over-year. Core inflation is at its highest level since September 2008, when the rate was 2.5%.

"The damage done by the run-up in energy prices in the first half of the year is still having an impact," Riccadonna said. "Energy prices were high enough for long enough, that they're certainly pushing food prices up and things like airfare up."