U.S. consumer prices were unchanged in November, as lower energy and car prices offset increases in costs for home ownership and medical care, the Labor Department reported Friday (Dec, 15).
CBS MarketWatch reported that core prices – which exclude volatile food and energy prices – were also unchanged in November, the lowest core inflation since June 2005.
The consumer price index was much tamer than expected. Economists polled by MarketWatch expected 0.2% gains for both headline and core inflation.
“The inflation scare of 2006 is over,” wrote Kenneth Beauchemin, an economist for Global Insight.
The flat readings could encourage the Federal Reserve to begin to relax about inflation. Earlier in the week, the Federal Open Market Committee (FOMC) said it judged inflation risks to be its greatest concern even as it held interest rates steady at 5.25%. The Fed also said it expected inflation rates to come down as the economy slowed.
“A moderation in inflation pressures would not bring on Fed easing unless the economy weakens dramatically further, an outcome that we do not expect,” wrote Stephen Stanley, chief economist for RBS Greenwich Capital, in an email.
“Inflation is fading fast,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics, in an email. “The Fed can safely ease to boost growth.”
“What will be key over the coming months is whether this is truly a sustained downturn in core inflation or just a temporary respite, as pressures from energy prices and labor costs still pose threats to broader price stability,” wrote Richard Moody, chief economist for Mission Residential, in an email.
Markets and most analysts expect the Fed to cut rates next year, figuring that worries about stalling growth will begin to outweigh the Fed’s concerns about inflation.