US consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled, but this probably will not change views the Federal Reserve will start raising interest rates in mid-2015.
The Labor Department said on Wednesday its Consumer Price Index fell 0.3 per cent last month, the largest decline since December 2008, after being flat in October.
In the 12 months through November, the CPI increased 1.3 per cent, the smallest gain since February, after advancing 1.7 per cent in October.
"The further fall in US inflation won't worry the Fed too much," said Paul Dales, a senior economist at Capital Economics in London.
Wall Street had forecast the CPI slipping only 0.1 per cent from October and rising 1.4 per cent from a year ago.
US stock index futures extended gains after the data, while prices for . Treasury debt trimmed losses. The dollar held gains versus a basket of currencies.
Underlying price pressures are also ebbing a bit after showing some signs of creeping up in October.
Stripping out food and energy prices, the so-called core CPI edged up 0.1 per cent after rising 0.2 per cent in October. In the 12 months through November, the core CPI rose 1.7 per cent after increasing 1.8 per cent in October.
The Fed targets 2 per cent inflation and it tracks an index that is running even lower than the CPI.
Plunging crude oil prices, which hit a fresh 5-year low this week on increased shale production in the US and slowing global demand, are keeping overall inflation in check for now.
While inflation is trending lower, job growth has shifted into higher gear and the pace of slack absorption in the economy has accelerated in recent months.
That has left many economists to expect the US central bank could signal its intention for a mid-2015 interest rate hike when officials end a two-day meeting later on Wednesday.
Such a signal could come through changes to the Fed’s so-called forward guidance on rates and new economic projections.
Low inflation could still urge caution for the Fed, which has kept its short-term interest rate near zero since December 2008. The Labor Department report also showed average weekly earnings, adjusted for inflation, in November recorded their biggest gain in six years.
Petrol prices fell 6.6 per cent, the biggest drop since December 2008, after declining 3 per cent in October. Petrol has now declined for five straight months.
Food prices rose 0.2 per cent after nudging up 0.1 per cent the prior month. Within the core CPI, shelter costs increased 0.3 per cent last month after rising 0.2 per cent in October.
There were also increases in airline fares, medical care and alcohol prices. New motor vehicle prices, however, fell as did the cost of household furnishings, apparel and used cars and trucks.
Reuters
