Inflation Tame in Nov.; Output Slips

WASHINGTON -- Recession’s grip kept U.S. consumer price inflation in check during November, while factory production kept sliding for most goods except new cars, according to reports released Friday.

Despite their overall grim tone, the reports contained hints about the potential for recovery ahead, making it likely that aggressive interest rate cuts by the Federal Reserve are near or at an end.

But the latest government and Federal Reserve data show that, aside from auto manufacturing, there is considerable slack in the economy that must be taken up en route to renewed expansion.

The Labor Department said falling food and energy costs kept its consumer price index of inflation flat last month after a 0.3% decline in October. Imported energy is cheaper primarily because the global economic slowdown has reduced demand.

However, costs for such services as medical care and shelter as well as for 2002-model cars and tobacco all climbed, helping drive the core rate of inflation, which excludes food and energy, up 0.4%.

That was twice the 0.2% rise posted in October and the sharpest gain for any month since a 0.4% rise in January 1996.

Separately, the Fed said industrial production dropped for the fourth straight month, down 0.3% in November after a 0.9% plunge in October. Businesses ran at their slowest rate in 181/2 years, using only 74.7% of maximum operating capacity.

The automotive sector proved to be a bright spot, however, because auto production was ramped up to match sales driven by zero-interest loans from car makers.

The Fed said vehicle assemblies rose to an 11.81 million annual rate from 10.7 million in October, the strongest clip for new-car production since July.

A third report, from the Commerce Department, showed businesses were making solid progress at the start of the fourth quarter in paring overstocked inventories--a necessary condition before industrial output can re-accelerate.

Inventories dropped 1.4% in October, the biggest plunge since records were kept in their current form in 1992, after a revised 0.6% decline in September. Overall business sales climbed a record 2.7%, with retailers posting strong gains on booming new-car sales.

“All of these reports can be taken as tentative signs that recession is at least slowing,” said Robert Dederick, economic consultant to Northern Trust Co. in Chicago.

Economist Joel Naroff of Naroff Economic Advisors Inc. in Holland, Pa., said the CPI report was a red flag for markets and policymakers. Medical and other service costs will keep rising once the U.S. economic turnaround occurs, he said.

“Thus, while inflation remains tame for now, any indication the economy is moving into an above-trend growth mode will almost certainly be met by aggressive Fed tightening,” Naroff said.

During the first 11 months of 2001, consumer prices have increased at an annual rate of just 1.9% seasonally adjusted, compared with a 3.4% rise for all of 2000.

New-car prices climbed 0.6% during November, after a slight 0.1% gain in October. The department said it was the strongest rise in new-car prices since an identical 0.6% jump in January 1991.