Consumer inflation flat in November

Inflation stayed docile for a third straight month in November, helped by falling energy prices and lower costs for everything from new cars and airline tickets to food and clothing.

The Labor Department reported Friday that its closely watched Consumer Price Index was unchanged following sharp declines of 0.5 percent in September and October.

The good news on inflation reflected a big retreat for gasoline and other energy prices, which are down from the record highs set this summer.

Economists were also encouraged by the widespread declines in other areas, saying they provided strong evidence that the slowing economy was helping to lower inflation pressures, just as the Federal Reserve had hoped.

Core inflation, which excludes energy and food, was unchanged in November, the best showing in 17 months.

"The inflation scare of 2006 is over," said Kenneth Beauchemin, an economist at Global Insight, a private forecasting firm.

In a second report, the Federal Reserve said that industrial production rose 0.2 percent in November, the first increase following two months of declines.

The rebound was led by a 0.3 percent jump in output at factories as auto plants posted a strong 3.7 percent increase following two months of big declines.

Analysts viewed the pickup in factory activity as a good sign that the Fed will be able to achieve its goal of slowing economic growth enough to keep inflation in check without triggering a recession.

"The economic jet engine is coming in for a soft landing," said Mark Zandi, chief economist at Moody's Economy.com. "We have gotten a string of good inflation readings and while the economy is still soft, it is not headed for a recession."

At the White House, presidential spokesman Tony Fratto called the slowdown in inflation "great news for workers out there, who will see less inflation eating into their wages."

A separate report showed that inflation-adjusted average weekly earnings for non-supervisory workers were up 2.6 percent in November compared with a year ago. That was the third straight month of solid readings following a prolonged period of weakness when high energy costs were cutting into workers' spending power.

On Wall Street, investors were encouraged with the benign inflation reading and the rebound in industrial production, pushing stocks higher a day after the Dow Jones industrial average had closed at a new record.

With one month left in 2006, overall inflation is rising at an annual rate of 2.2 percent, down from last year's 3.4 percent. Core inflation, excluding energy and food, has been rising at an annual rate of 2.6 percent this year, compared with 2.2 percent last year.

The Fed's comfort zone for core inflation is between 1 percent and 2 percent and many economists said the Fed was likely to keep rates on hold, as it did this week, until the readings fall further. They said the Fed is likely to start cutting rates by May or June next year.

At its last meeting of the year on Tuesday, the Fed still expressed the view that "some inflation risks remain" even while noting that there has been a "substantial cooling in the housing market."

For November, overall energy costs were down 0.2 percent following even bigger declines of 7.2 percent in September and 7 percent in October. U.S. prices have retreated after global crude oil prices began falling this summer.

Gasoline pump prices were down 1.6 percent last month but natural gas, the most popular home heating source, increased 4.7 percent.

Food costs dipped 0.1 percent, the best showing since January 2004. The decline reflected falling prices for vegetables, fruit, dairy products, pork and poultry.

The unchanged performance for core prices included a drop of 0.3 percent in clothing costs, a 0.7 percent fall in new car prices and a 4.8 percent decline in airline fares.

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On the Net:

Consumer prices: http://www.bls.gov/cpi

Industrial production: http://www.federalreserve.gov