Consumer Prices Are Unchanged in November : Economy: It’s the lowest reading in more than four years, fueling rate cut hopes. Factory production up 0.2%.
Consumer prices were unchanged in November, the Labor Department said Thursday, easing inflation worries and boosting the case for an interest rate cut.
The consumer price index for November is the lowest month-to-month result since March 1991, when it was also unchanged. The index rose 0.3% in October.
The news cheered Wall Street analysts, who are hoping the Federal Reserve Board will decide to cut short-term interest rates when its policymaking committee meets Tuesday. The Fed’s long-term goal is to continue to reduce inflation, so news that that may be occurring gives central bank officials more leeway to respond to signs of weak economic growth.
In particular, the report shows that an unexpectedly sharp 0.5% rise in producer prices for finished goods last month was not affecting the prices consumers were paying at the retail level.
Thursday’s consumer price index report surprised analysts who had predicted that the index would be up at least 0.2%.
The index was 2.6% higher than in November 1994, but it was up at only a 1.8% annual rate in the latest three months.
Excluding volatile food and energy prices--that is, if the economy’s underlying, or core, inflation rate is measured--the index rose 0.1% last month. On this core basis, the index was up 3% over the last 12 months, and up at a 2.5% annual rate in the last three months.
Meanwhile, the Fed itself reported that production at the nation’s factories, mines and utilities rose 0.2% last month, recovering some but not all of a 0.3% drop in October.
The 69-day strike at Boeing Co., which ended Wednesday as workers in the company’s biggest union overwhelmingly ratified a new contract, reduced the growth rate for total industrial output by 0.2% in October and by 0.1% in November, the Fed said.
“The effects of the strike were concentrated in business equipment and in durable-goods materials,” it said.
The manufacturing sector has been soft for much of this year as it has tried to reduce inventories of unsold goods. Over the last 12 months, factory production rose 1.8%, compared with a 7.6% surge for the 12-month period ended in November 1994.
The Fed also said the share of total production capacity in use last month dipped a tenth of a point to 83.1%, continuing a decline from a peak of 85.1% at the end of last year. This decline, along with other evidence, indicates there is now much less pressure on industrial commodity and finished goods prices. Analysts cite that as another reason the Fed may cut interest rates.
A third report out Thursday, this one from the Commerce Department, underscored the troublesomeness of inventory levels. The stocks of unsold goods at factories, wholesalers and retailers rose 0.6% in October despite a decline that month in factory production.
Retail inventories rose 0.9%. Coupled with a 0.4% drop in sales, the inventory rise pushed the industry’s inventory-sales ratio to 1.56, the highest level since the end of 1991. That figure means that at the sales pace of October, it would take 1.56 months to move all the unsold goods on retailers’ shelves and lots.
This array of price and production news matches exactly what Merrill Lynch & Co. this week told its clients about the way it expects the economy to behave in coming months.
“The current period of economic sluggishness is likely to persist into 1996, but we believe that the risk of recession is minuscule,” the brokerage firm said. “Instead, we expect growth to firm up later in the year in response to lower interest rates.”
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Food prices will rise modestly in 1996, USDA said. D2
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Consumer Price Index
Seasonally adjusted, month-to-month percentage change:
Nov. 1995: No change
Source: Labor Department
