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Little sign of inflation as prices barely rise

U.S. industrial production rose at its fastest pace in four months in November, implying a self-sustaining recovery is now entrenched, but a mild gain in consumer prices indicated still abundant slack in the economy.

Industrial output rebounded 0.4%, the Federal Reserve said on Wednesday, the latest data to suggest the recovery gained momentum in the fourth quarter.

However, with inflation barely rising, economists said the pick-up in economic activity was insufficient to discourage the Fed from completing its planned purchase of $600 billion in government bonds to keep borrowing costs tamped down, and weekly data showed mortgage applications fell on high rates.

“The economy is picking up momentum as we finish up the year. But the improvement in data is not enough to stop the Fed doing what they are doing,” said Neil Dutta, an economist at Merrill Lynch Bank of America in New York.

The closely watched core Consumer Price Index, which excludes food and energy costs, edged up 0.1% in November, the first gain in three months, the Labor Department said. Overall consumer prices inched up 0.1%, slowing from a 0.2% rise in October.

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The rise in core CPI matched economists’ expectations, but CPI was below the 0.2% increase that had been forecast.

Adding to the brightening economic picture, credit card delinquency rates fell at major domestic lenders last month as fewer consumers fell behind on bill payments.

Economists parsing the latest report on consumer prices on Wednesday said it was likely that a slowing in core inflation, which had been troubling the Fed, had now run its course.

In the 12 months to November core CPI gained 0.8%, edging up from October’s record low 0.6% but staying way below the Fed’s comfort zone of 1.6% to 2.0% inflation.

“We have been expecting inflation to bottom out in the fourth quarter, mostly driven by the end of falling shelter costs. We are seeing some of that occurring,” said Troy Davig, senior U.S. economist at Barclays Capital in New York.


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