U.S. consumer prices fell in December amid plunging energy costs, the government said on Wednesday in a report that may bolster expectations for a cut in U.S. interest rates later this month.

The Consumer Price Index, the main U.S. inflation gauge, eased 0.2 percent last month, the Labor Department reported. Excluding the volatile food and energy components, the so-called core CPI increased 0.1 percent.

During all of 2001, the CPI was up only 1.6 percent, the smallest gain since a matching 1.6 percent rise in 1998. The core CPI rose 2.7 percent last year.

The latest data adds to evidence that inflation is calm in the recession-mired U.S. economy and it helps give the Federal Reserve leeway to cut interest rates at its upcoming Jan. 29-30 meeting, a move that many on Wall Street have been expecting.

U.S. economists in a Reuters survey had expected the December CPI to be unchanged and the core rate to edge up by 0.1 percent.