The Bureau of Labor Statistics said that consumer prices were unchanged in November. Once again, lower petroleum prices helped to ease inflationary pressures. Gasoline prices have fallen 2.9 percent and 1.6 percent in October and November, respectively. Indeed, the price of West Texas intermediate crude fell from an average of $106.29 per barrel in September to $100.54 and $93.86 per barrel in October and November, respectively. Total energy costs for consumers declined 1.0 percent in November.
The increase in energy prices was offset by modest gains in food and other costs. Food prices rose 0.1 percent in November, boosted by higher dairy prices and the cost of food away from home. At the same time, there were lower prices for cereals and bakery products, fruits and vegetables, meats and eggs, and nonalcoholic beverages.
Outside of food and energy, the largest monthly price increases were seen for shelter expenses and airline fares. In contrast, prices for apparel, hospital services, household furnishings and supplies, new vehicles, and tobacco and smoking products were lower in November.
Overall, consumer prices have risen by just 1.2 percent over the past 12 months. Core inflation – which excludes food and energy costs – has grown by 1.7 percent year-over-year. This suggests that pricing pressures remain quite modest, with core inflation running below the Federal Reserve’s stated target of 2 percent. In fact, core inflation has not exceeded 2 percent since July 2012.
The Federal Open Market Committee (FOMC) meeting begins today, with a decision on monetary policy coming tomorrow afternoon. There is some expectation that the Fed will announce a decision to start “tapering” (or reducing) its asset purchases at this meeting. I suspect that the FOMC will instead push this decision back to either the January 28–29 or March 18–19 meeting.
Improvements in the macroeconomy should serve as an incentive to begin to scale back its asset purchases, but very low current inflationary pressures give the FOMC the leeway to stand pat if it wants to wait and see more evidence of growth before acting. Either way, financial markets have once again begun pricing in a possible taper, with the average yield on 10-year Treasury notes rising from a recent low of 2.51 percent on October 23 to a close of 2.88 percent yesterday.
Chad Moutray is the chief economist, National Association of Manufacturers.
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