According to the latest Labor Department report, inflation continued its gradual descent in December, providing comfort for families and policymakers as consumer prices posted their most significant monthly decline since early in the Covid-19 pandemic.

The Consumer Price Index (CPI), a key data point for the Federal Reserve, fell 0.1% in December, which was in line with estimates and also equated to the largest month-over-month decrease since April 2020.

Headline CPI, which measures year-over-year, rose 6.5% and is down from 7.1% in the November reading. The annual inflation rate was the slowest since October 2021, largely due to a steep decline in airfare and gas prices.

The index measures the change in prices paid by consumers for a wide array of goods and services. The estimates come from economists polled by Dow Jones.

Economists and Fed officials more acutely focus on the so-called "core CPI," which removes volatile food and energy prices to get a sense of underlying price trends.

That measure climbed 5.7% in December from a year earlier, compared with 6% previously and in line with forecasts. Looking at it month-over-month, core CPI rose 0.3% in December, also meeting expectations.

One of the big categories that dragged down overall inflation was gasoline, which fell sharply in price in December. Average gas prices tumbled 9.4% for the month and are now down 1.5% from a year ago after exceeding $5 a gallon in June 2022.

Food prices rose 0.3% across the board, marking a slight slowdown from earlier readings. However, some products like eggs saw huge increases, boosting their prices by about 11% in December alone.

Shelter also saw another sharp gain of 0.8% for the month, and is now 7.5% higher than a year ago. Shelter accounts for about one-third of the total CPI index.

Markets are watching the Fed's moves closely as officials fight against inflation that at its peak was the highest in 41 years. To alleviate conditions, central bankers have been raising interest rates, making borrowing more expensive for companies and households in a bid to slow demand and the broader economy.

Officials have indicated the rate is likely to exceed 5% before they can step back to see the impact of the policy tightening. Investors are hoping the Fed will decrease the interest rates now that inflation is showing signs of cooling.

Markets wobbled slightly following the Thursday morning report, as stocks dipped in relation to the inflation that stubbornly remains in certain corners of the economy.

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