U.S. inflation retreating as consumer prices fall; labor market still tight - Summary - Consumer prices fall 0.1% in December - CPI increases 6.5% year-on-year - Core CPI rises 0.3%; up 5.7% year-on-year - Weekly jobless claims fall 1,000 to 205,000 WASHINGTON, Jan 12 (Reuters) - U.S consumer prices fell for the first time in more than 2-1/2 years in December as gasoline and motor vehicles prices declined, offering hope that inflation was now on a sustained downward trend, though the labor market remains tight.Cooling inflation could allow the Federal Reserve to further scale back the pace of its interest rate increases next month.The labor market remains tight, with the unemployment rate back at a five-decade low of 3.5% in December, and 1.7 jobs for every unemployed person in November.Claims have remained low despite high-profile layoffs in the technology industry as well as job cuts in interest rate-sensitive sectors like finance and housing.The number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 63,000 to 1.634 million in the week ending Dec. 31, the claims data showed The government reported last week the economy created 223,000 jobs in December, more than double the 100,000 that the Fed wants to see to be confident inflation is cooling."