Consumer Prices Rise on Higher Energy Prices

Consumer prices rose 0.4% in November, the U.S. Labor Department announced Wednesday, pushed higher by energy prices, which rose for the sixth time in seven months. The core rate -- which excludes the often-volatile food and energy component -- was unchanged for the month.

A Bloomberg News economists' survey had expected consumer prices to increase 0.4% in November, and the core rate to rise 0.1%. Consumer prices rose 0.3% in October, 0.2% in September, and 0.4% in August.

Little Sign of Inflation in 2009

The U.S. economy over the past year still shows little sign of inflation: Consumer prices have risen just 1.8% in the past 12 months. Meanwhile, the core consumer price index, closely monitored by the U.S. Federal Reserve, has risen 1.7% in the past year -- or within the Fed's "comfort zone" for inflation.

In November, one can see the clear impact of energy prices: They jumped 4.1%, with gasoline surging 6.4% and fuel oil leaping 9.0%. Meanwhile, new car prices rose 0.6%, used cars jumped 2.0%, transportation services increased 0.6%, commodities (excluding food and energy) rose 0.2%, medical care and services climbed 0.4%; also, apparel prices fell 0.3%, and shelter declined 0.2%.

Most economists do not expect inflation to rise in the months ahead. They say the recession, which has idled factory production and resulted in more than 7.6 million lay-offs, has led to excess capacity in the commercial sector and slack in the labor force that will limit price and wage increases.

Also working against inflation: the reluctance by those foreign manufacturers who export goods to the United States to raise prices amid intense competition. Many refuse to raise prices despite cost increases for fear of being priced out of the large, lucrative U.S. market.

Further, November's low inflation rate will help provide support for lawmakers in Washington who are seeking a jobs package to jump-start the U.S. job market via increased infrastructure work and tax-credit hiring incentives. There's little sign that the stimulus deployed to-date has increased inflation.

Economic Analysis

The November CPI proved to be another tame retail inflation report. What's more, it appears the deflation threat has lessened somewhat, as well. The key rate, the one the U.S. Federal Reserve monitors, is the core rate and right now the nation is looking at 1.3-1.8% core inflation for the year, which is where the Fed wants it to be. That "comfort zone" core inflation should enable the Fed to continue its accommodative monetary policy for a longer period of time to stimulate the U.S. economy, without the fear of rising prices. The bottom line for investors: The U.S. economy will likely continue to experience low inflation in the first half of 2010, and probably for longer.
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