Consumer Prices Fall 0.3% on Lower Gas Costs

Gas prices fell 7.4 percent, the biggest drop in nearly four years, offsetting a 0.2 percent rise in food prices.

The seasonally adjusted Consumer Price Index dropped 0.3 percent in November from October, the department said.

In another report on Friday, the Federal Reserve said that factory output increased 1.1 percent in November from October as factories rebounded from Hurricane Sandy. But after factoring out the storm’s impact — output declined 1 percent in the previous month, a drop that was blamed on the hurricane — the broader trend in manufacturing remained weak.

Auto production jumped 4.5 percent last month, the first increase since July. Production of primary metals, wood products, electrical equipment and appliances all showed gains.

Total industrial output at factories, mines and utilities also rose 1.1 percent last month, after a 0.7 percent decline in October.

In the consumer price report, priced ticked up 0.1 percent in November, excluding the volatile food and gas categories. Core prices have risen 1.9 percent in the last year, below the Federal Reserve’s annual target of 2 percent. Higher rents, airline fares and new cars pushed up core prices last month. The cost of clothing and used cars fell.

“In simplest terms, inflation is not a problem,” Jim Baird, chief investment strategist at Plante Moran Financial Advisors, said. Lower inflation “is a real positive that should provide modest relief for households dealing with limited income growth.”

High unemployment and slow wage growth have made businesses reluctant to raise prices, for fear of driving away customers. That has helped keep inflation tame.

Gas prices have fallen sharply in the last two months after spiking in the late summer. A gallon of gas cost an average of $3.29 nationwide Friday. That’s 15 cents less than a month ago and 50 cents less than in mid-October.

The increase in food prices was smaller than many economists expected. This summer’s drought in the Midwest, which scorched corn and soybean crops, has pushed up food prices, but not sharply. Food costs have risen 1.8 percent in the past 12 months.

The cost of milk, cheese and other dairy products, however, have risen 0.8 percent in each of the last two months. That could reflect the higher cost of animal feed, which usually includes corn and soybeans. Cereals and baked goods rose 0.3 percent last month.

But prices for the broad category of meat, chicken, fish and eggs fell in November after a big gain the previous month.

Shoppers may face further increases soon. Wholesale food costs jumped 1.3 percent last month, according to a separate report Thursday, the most in nearly two years.

Beef prices jumped the most in four and a half years, and vegetable costs rose sharply. Grocery stores may pass on some of those costs in the coming mons.

With inflation in check, the Fed said on Wednesday that it now planned to keep the short-term interest rate at nearly zero until the jobless rate fell to at least 6.5 percent, as long as inflation was not expected to top 2.5 percent.

It was the clearest sign yet that the Fed will keep rates low even after unemployment falls further and the economy picks up.

Article source: http://www.nytimes.com/2012/12/15/business/economy/consumer-inflation-declines.html?partner=rss&emc=rss