WASHINGTON (AP) – Consumer prices stayed flat in November, further evidence that inflation has cooled off.
Energy costs dropped for the second straight month, which offset higher prices that Americans paid for food, clothes and medical services.
Milder inflation offers some relief to consumers, who were hit earlier this year with a surge in gas and food prices. It also gives the Federal Reserve leeway to act further to boost the economy without fanning inflation.
"This is more good news for the consumer," said Jim Baird, chief investment strategist at Plante Moran Financial Advisors. "The pace of inflation has clearly moderated in recent months."
The consumer price index was unchanged in November, the Labor Department said Friday. That followed a 0.1 percent decrease in October.
Excluding volatile food and energy costs, so-called "core" prices rose 0.2 percent.
In the 12 months ending in November, prices rose 3.4 percent, below October's 3.5 percent pace and the smallest year-over-year rise since April.
Core prices have risen 2.2 percent in the past 12 months, the most in more than three years. More expensive clothing and higher prices for rent have driven the core index up in that time.
Over the past 12 months, clothing prices have increased at the fastest pace in twenty years. That's largely because of higher cotton costs.
Still, core price increases have slowed recently. And cotton prices are half what they were a year ago, which should lead to lower clothing prices next year.
Many economists say inflation probably has peaked and is likely to decline next year. Slower growth in China and a possible recession in Europe have reduced global demand for energy and other goods. That should hold down the price of oil and other commodities.
Gas prices have also declined. Nationwide, gasoline cost an average of $3.25 a gallon Friday, down from $3.40 a month ago, according to AAA.
Stagnant pay should also hold down inflation next year. Americans can't afford to pay higher prices without higher wages. But in the past year, average hourly inflation-adjusted pay fell 1.5 percent. That makes it harder for retailers to raise prices.
If inflation eases next year, the Fed might be more inclined to launch another bond-buying program to further reduce interest rates, should it decide the economy needs it. Lower rates would make it cheaper for companies and individuals to borrow and spend.
Some Fed policymakers have expressed concerns that the central bank's efforts to push rates lower have increased the risk of inflation. That's because the Fed creates money to buy the securities. More money in the economy with the same amount of goods and services can force prices higher.
A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner, before inflation erodes its value.
But when prices grow more slowly after a period of sharp cost increases, consumers feel a little wealthier and step up spending. That can lift the economy because consumer spending accounts for 70 percent of economic activity.
Americans increased their spending over the summer as prices eased. As a result, the economy expanded at an annual rate of 2 percent after barely growing in the first half of the year. Economists expect slightly stronger growth in the final three months of the year, in part because of higher consumer spending.
The Fed declined to make any new moves at its latest meeting Tuesday. But policymakers repeated their commitment to keep short-term interest rates at a record low near zero until at least mid-2013, as long as the economy remains weak. If there were signs that inflation was increasing to worrisome levels, the Fed would likely raise rates.
The central bank said last month that it expects consumer inflation to fall from about 2.8 percent this year to roughly 1.7 percent next year. That's in the Fed's preferred range for core inflation of about 1.7 percent to 2 percent.
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