December core consumer prices rose at a 2.6% annual rate, less than expected

Core U.S. consumer prices rose less than predicted in December, reinforcing hopes that inflation is tempering as the Federal Reserve contemplates its next move on interest rates.

Excluding volatile food and energy prices, the consumer price index showed a seasonally adjusted 0.2% gain on a monthly basis and 2.6% annually, the Bureau of Labor Statistics reported Tuesday. Both were 0.1 percentage point below expectations.

Though they look at both measures, Fed officials consider core inflation a better long-run gauge of where inflation is heading.

On a headline basis, the CPI posted an increase of 0.3% for the month, putting the all-items annual rate at 2.7%. Both were exactly in line with the Dow Jones consensus estimate.