US consumer prices fall on gasoline; eyes on Fed

17 Dec 2014 | Author: | No comments yet »

Consumer Prices in U.S. Decline by Most in Six Years on Fuel.

WASHINGTON—U.S. consumer prices fell in November at the steepest rate in almost six years, a sign inflation is heading lower due to sliding oil prices.Washington — U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled, but this probably will do little to change views the Federal Reserve will start raising interest rates in mid-2015. The consumer-price index, which measures what Americans pay for everything from rent to haircuts, fell a seasonally adjusted 0.3% from October, the Labor Department said Wednesday.

Economists view the drop in oil prices as generally good for the U.S. economy, since it has freed up money for consumers to buy other goods and services. But Federal Reserve officials, who are set to wrap up a two-day policy meeting Wednesday, are closely tracking the figures to ensure inflation doesn’t fall too far below its target for price stability. “Cheaper gasoline has been a positive for consumers and, if sustained, should fuel stronger household spending and support growth in the U.S.,” Jim Baird, chief investment officer of Plante Moran Financial Advisors, said in a note to clients. “However, it may also serve as a cautionary note for the health of the global economy.” The Fed targets annual inflation at 2% as a sign of healthy economic growth and stable prices. Plunging crude oil prices, which hit a fresh 5-1/2 year low this week on increased shale production in the U.S. 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. Persistently low inflation allows Fed policy makers, scheduled to end a two-day meeting today, to exercise patience in raising the benchmark interest rates that they’ve held near zero since 2008 to spur growth and trim unemployment. The average cost of regular gasoline dropped to $2.51 a gallon on Dec. 16, the cheapest since 2009 and down from this year’s high of $3.70 reached in April, according to AAA, the biggest U.S. auto group. Retail sales rose 0.7 percent in November, the most in eight months, as consumers snapped up electronics, clothing and furniture, Commerce Department figures showed.

The Fed’s preferred inflation measure, the Commerce Department’s price index for personal consumption expenditures, showed overall prices up 1.4% in October from a year earlier and core prices up 1.6%. Fed officials weighing when to raise rates are likely to focus on a jobless rate that’s fast approaching their goal for full employment, even as declining oil prices hold inflation below their target, economists said. Policy makers, at their meeting yesterday and today, will look past low inflation and drop a pledge to keep interest rates near zero for a “considerable time” as the Fed seeks an exit from the loosest monetary policy in its 100-year history, analysts said. The Federal Open Market Committee will adopt a word such as “patient” to describe its approach to policy, according to 68 percent of economists surveyed by Bloomberg. That drew customers and helped companies including Costco Wholesale Corp., L Brands Inc. and Gap Inc. (GPS:US) to report November same-store sales that exceeded analysts’ estimates.

The deficit on secondary income, which includes government and private transfers, jumped to $34.9 billion from $22 billion in the second quarter, which was depressed by fines and penalties paid to the U.S. government by foreign institutions. That surge swamped a narrowing in the trade deficit and a larger surplus in primary income, which increased to $59 billion, the biggest since the last three months of 2011, from $54.8 billion.

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