Break in Inflation Seen as Cost of Living Rises 0.3% : Economy: Fed responds by cutting its discount interest rate by 0.5 percentage points to 6.5%.

The cost of living rose a moderate 0.3% in November, the government said today, reporting the first inflation break for consumers since Iraq’s invasion of Kuwait sent oil prices skyrocketing.

The seasonally adjusted increase in the Labor Department’s consumer price index followed an increase of 0.6% in October and even larger rises of 0.8% in both September and August.

“The oil bubble has really pretty well passed through now,” said economist Robert G. Dederick of Northern Trust Corp. in Chicago.

For the first 11 months of the year, prices rose at a seasonally adjusted annual rate of 6.4%, up substantially from the 4.6% rate for the same period a year ago.

However, economists expect the inflation rate to subside to between 3% and 4% next year as the slumping economy weakens demand and as oil prices retreat toward pre-invasion levels.

The Federal Reserve Board responded to the moderation in prices by cutting its benchmark discount interest rate by 0.5 percentage points to 6.5%. Other interest rates are expected to fall as a result of the Fed’s decision, making it easier to borrow money for everything from automobiles to homes and businesses.

Energy prices rose only 0.5% in November after jumping more than 15% over the previous three months.

The weak economy, which encouraged retailers to offer early discounts on Christmas merchandise, showed up in a 0.2% decline in clothing costs.

Sluggish housing markets are reflected in homeowners’ monthly payments, which remained unchanged in November and were virtually unchanged during the two previous months.

Food and beverage prices were up 0.4%, as a large 2.7% rise in fruit and vegetable prices offset declines for other items.

The prices of goods and services, excluding the volatile energy and food sectors, rose a moderate 0.3%, the same as in the previous two months. The lack of any pickup in this key number, considered the best measure of so-called core inflation, could provide encouragement to financial market traders.

Even with an end-of-the-year moderation, inflation this year likely will be the worst since 1981. Next year, the inflation news should be better even as analysts worry about the economy’s slowdown.