The Consumer Price Index, a measure of inflation, declined a seasonally adjusted 0.7% from the prior month, the Labor Department said.
The CPI edged up 0.1% for the full year of 2008, the slightest annual increase since 1954.
The core CPI, without volatile food and energy prices, was unchanged from the prior month, the government said.
Economists had expected a CPI decline of 1% for December, and a decline of 0.1% for core CPI, according to a consensus of expectations provided by Briefing.com.
The decline was narrower than the CPI's record plunge of 1.7% in November, which exceeded all other monthly declines since the government began tracking them in 1947. The core CPI was unchanged in November.
The December decline was driven by plunging energy prices, which fell 8.3%, the government said. Transportation costs also fell by 4.4%. The cost of food, beverages and housing was unchanged.
As economy falls, more people put money away in savings
Gas prices on the rise
Good product at right price is no longer enough
