WASHINGTON – Consumer prices dipped by 0.2 percent in November, pulled down by cheaper gasoline, clothes and airline fares, fresh evidence that inflation isn't a problem even as the economy has shifted into a higher gear.
The Labor Department's (search) latest reading Tuesday on the Consumer Price Index (search), the government's most closely watched inflation barometer, comes after consumer prices were flat in October.
It marks the first decline in the CPI since April, when prices dropped by 0.3 percent.
Excluding energy and food prices, which can swing widely from month to month, "core" prices fell by 0.1 percent in November, the biggest drop since December 1982 and down from a 0.2 percent increase in October.
The declines in both overall consumer prices and in core inflation in November surprised economists. They were forecasting a tiny 0.1 percent advance in each measure.
Because inflation has been tame for some time, the Federal Reserve (search) last week held a key short-term interest rate at a 45-year low of 1 percent and suggested it could stay there for a "considerable period."
Fed policy-makers at that time also said the dangerous prospect that inflation could move lower was less of a concern than it has been. That marked a change from recent months where Fed policy-makers identified the remote threat of deflation, a widespread and prolonged price decline, as a risk that they must be on guard against because of its potential to wreck the economy.
The worries about deflation should dim as the economy gains traction, analysts say.
The economy grew at a scorching 8.2 percent annual rate in the third quarter, the hottest pace in nearly two decades. Analysts believed the economy slowed to a 4 percent growth rate in the October-to-December quarter, which would still be considered a healthy pace.
For the first 11 months of this year, consumer prices have risen at a seasonally adjusted annual rate of 1.8 percent, slower than the 2.4 percent rise for all of 2002. Core prices, meanwhile, have advanced at a rate of 1.1 percent so far this year, compared with a 1.9 percent increase last year.
In November, falling prices for energy products, clothing and airline fares outweighed rising prices for food, medical care and college tuition.
Energy prices retreated by 3 percent in November. That was led by a 5 percent drop in gasoline prices. Natural gas prices fell 3.1 percent and electricity prices went down by 0.6 percent last month. However, fuel oil costs rose 1 percent.
Food prices rose by 0.4 percent last month. Higher prices for beef and veal, fruit, poultry and pork swamped lower prices for vegetables and dairy products.
Elsewhere in the report: clothing prices last month dropped by 0.5 percent, airline fares fell 2.6 percent, lodging prices declined 1.1 percent and new-car prices were flat.
Medical care costs rose 0.3 percent in November and college tuition and fees went up by 0.4 percent, continued sore spots for consumers.
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