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Article updated: 12/14/2012 10:27 AM

Cheaper gas lowers U.S. consumer prices 0.3 percent

A steep fall in gas costs pushed down a measure of U.S. consumer prices in December, keeping inflation mild. The seasonally adjusted consumer price index dropped 0.3 percent in November from October, the Labor Department said Friday, Dec. 14, 2012. Gas prices fell 7.4 percent, the steepest drop in nearly four years. That offset a 0.2 percent rise in food prices.

A steep fall in gas costs pushed down a measure of U.S. consumer prices in December, keeping inflation mild. The seasonally adjusted consumer price index dropped 0.3 percent in November from October, the Labor Department said Friday, Dec. 14, 2012. Gas prices fell 7.4 percent, the steepest drop in nearly four years. That offset a 0.2 percent rise in food prices.

 

Associated Press

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By Associated Press

WASHINGTON -- A steep fall in gas costs pushed down a measure of U.S. consumer prices last month, keeping inflation mild.

The seasonally adjusted consumer price index dropped 0.3 percent in November from October, the Labor Department said Friday. Gas prices fell 7.4 percent, the biggest drop in nearly four years. That offset a 0.2 percent rise in food prices.

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In the past year, consumer prices have risen 1.8 percent, down from October's 12-month increase of 2.2 percent.

Excluding the volatile food and gas categories, prices ticked up 0.1 percent in November. Core prices have risen 1.9 percent in the past year -- below the Fed's annual target of 2 percent.

Higher rents, airline fares and new cars pushed up core prices last month. The cost of clothing and used cars fell.

"In simplest terms, inflation is not a problem," Jim Baird, chief investment strategist at Plante Moran Financial Advisors, said. Lower inflation "is a real positive that should provide modest relief for households dealing with limited income growth."

High unemployment and slow wage growth have made businesses reluctant to raise prices. Many worry higher prices could drive away customers. That's helped keep inflation tame.

Modest inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation also makes it easier for the Fed to continue with its efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.

The increase in food prices was smaller than many economists expected. This summer's drought in the Midwest, which scorched corn and soybean crops, has pushed up food prices. But the increase hasn't been dramatic so far. Food costs have risen 1.8 percent in the past 12 months.

Some items have seen big increases. The cost of milk, cheese and other dairy products have risen 0.8 percent in each of the past two months. That could reflect the higher cost of animal feed, which usually includes corn and soybeans. Cereals and baked goods rose 0.3 percent last month. But prices for the broad category of meat, chicken, fish and eggs fell in November, after a big gain the previous month.

The Fed said Wednesday that it now plans to keep the short-term interest rate it controls at nearly zero until the unemployment rate falls to at least 6.5 percent, as long as inflation isn't expected to top 2.5 percent in the next two years.

It was the clearest sign yet that they will keep rates super-low even after unemployment falls further and the economy picks up.

Unemployment was 7.7 percent last month and the Fed projects it will stay above 6.5 percent until late 2015. The Fed also projects inflation will stay at or below 2 percent for the next three years.

The Fed also said it would continue purchasing $85 billion in Treasury bonds and mortgage-backed securities each month in an effort to push down longer-term interest rates.

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