A closer look reveals that the primary reason for the pullback in prices was a decline in gasoline costs. Indeed, the gasoline index fell 2.3% last month, leading to a 1.2% decrease in energy costs for the consumer. Meanwhile, the food index was up nominally, rising 0.2% in the final month of 2012. The index for all items, excluding the volatile energy and food components, rose a rather pedestrian 0.1%, the same increase as in November. Overall, the 12-month change in the index for all items was 1.7% in December, down slightly from the 1.8% reading for the year ended November, 2012.

The latest benign reading on inflation is also within the Federal Reserve’s target level. Thus, the central bank should have no problem continuing its aggressive monetary actions in an effort to stimulate the economy. The Fed’s dual mandate calls for stable prices—which is the case right now—and maximum employment. The latter issue is still a major concern, which has prompted the aggressive continuance of quantitative easing. The Federal Reserve said it will continue its buying of both mortgage bonds and Treasuries until the nation sees what Chairman Ben Bernanke described as a “sustained improvement in the labor market.” If nothing else, the latest tame reading on inflation puts no pressure on the Federal Reserve to raise interest rates. The lead bank plans to keep rates at their current level for the foreseeable future, perhaps even until the early stages of 2015.

All in all, the latest reading on consumer prices shows that inflation is not a major issue right now for the central bank. This data, along with yesterday’s tame survey on producer prices, should allow the Federal Reserve to continue its accommodative monetary policies. Investors should note that later today the central bank will release its latest Beige Book summation of economic conditions.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.