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Cheaper gas helping keep inflation low

Sat., Dec. 15, 2012

Consumer price index dips, despite rise in cost of food

WASHINGTON – A steep fall in gas costs pushed down a measure of U.S. consumer prices last month, keeping inflation mild.

The seasonally adjusted consumer price index dropped 0.3 percent in November from October, the Labor Department said Friday. Gas prices fell 7.4 percent, the biggest drop in nearly four years. That offset a 0.2 percent rise in food prices.

In the past year, consumer prices have risen 1.8 percent, down from October’s 12-month increase of 2.2 percent.

Excluding the volatile food and gas categories, prices ticked up 0.1 percent in November. Core prices have risen 1.9 percent in the past year.

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. Many worry higher prices could drive away customers. That’s helped keep inflation tame.

Modest inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation also makes it easier for the Fed to continue with its efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.


 

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