Fall in Oil Prices Holds Inflation to 0.2% in November : Economy: Analysts expect more good price news. Separate reports show improvements in incomes, consumer sentiment.
A sharp decline in international oil prices restrained U.S. inflation to a modest 0.2% in November, and analysts predicted even better price news ahead despite improving economic growth.
Energy prices fell 1.3% last month, the biggest decline since March, 1991. That helped offset a 0.4% rise in food costs and a 0.3% increase in the prices of all other goods and services.
The energy declines were produced by a drop in crude oil prices from nearly $19 a barrel in mid-October to slightly more than $14.50 a barrel earlier this month. The drop should restrain inflation to near zero for the next few months, analysts said.
For the first 11 months of this year, consumer prices have risen at a 2.8% annual rate, down a notch from the 2.9% rate for all of last year.
And the consensus forecast of 51 top economists surveyed by Blue Chip Economic Indicators of Sedona, Ariz., is for a 2.9% rate next year.
“The bottom line is . . . you’re basically looking at 3% inflation. That’s where we’ve been for the last two years, and that’s probably where we’ll be for another year,” said economist Donald Ratajczak of Georgia State University.
Despite the favorable price outlook, economists are becoming increasingly convinced that the Federal Reserve Board will nudge short-term interest rates higher early next year just to make sure price pressures do not rise.
“The Fed really has to be focused on the long term,” said economist Martin Regalia of the U.S. Chamber of Commerce. “Even at 3%, inflation isn’t good enough for them.”
In a separate report, the Labor Department said Americans’ inflation-adjusted average weekly earnings have climbed for two consecutive months, up 0.7% in October and 0.3% in November.
In November, gasoline prices fell 1.8%, the biggest decline in six months, after jumping 4.5% in October because of an increase in federal excise taxes. Fuel oil declined 0.6% and electricity 0.8%. Natural gas was down 1.7%, the largest decline since April, 1990.
The index for meat, fish, poultry and eggs increased 0.5%, reflecting higher feed prices after the summer’s floods in the Midwest. Vegetable prices jumped 5.3%, but fruit costs fell 0.5%, led by an 11% drop in oranges, the steepest in two years.
In yet another report, the University of Michigan’s preliminary consumer sentiment index for December rose to 87.7 from 81.2 in November, according to those with access to the survey.
The few economists who forecast the index had expected it to be about 84.
