Inflation Low Ahead of Key Fed Meeting

WASHINGTON (Los Angeles Times/MCT) -

Consumer prices were unchanged last month, the government said Tuesday, keeping inflation running low as Federal Reserve policymakers start a two-day meeting to decide if the economy is strong enough to begin reducing a key stimulus program.

The Labor Department’s consumer price index was flat in November, in line with analyst expectations, following a 0.1 percent drop the previous month.

For the 12 months ending in November, prices have increased 1.2 percent. That’s up from 1 percent for the year ending in October and well below the Fed’s target for 2 percent annual inflation.

Central bank policymakers use a different inflation measure, based on personal consumption expenditures, that is running even lower – up just 0.7 percent for the 12 months ending in October.

Economists have been concerned the Fed’s easy-money policies, including the $85-billion-in-monthly-bond-buying program started in September 2012, could cause prices to skyrocket.

Instead, inflation has been low.

The November consumer price index was the last major piece of government economic data before the Fed’s final meeting of the year Tuesday and Wednesday.

Analysts said there’s about a 50 percent chance that Fed officials will decide to start reducing the bond-buying program, which was designed to stimulate the economy.

With recent upbeat economic data, including a strong November jobs report, Fed policymakers might be ready to start tapering their purchases. The policymaking Federal Open Market Committee will announce Wednesday if they will start reducing the bond purchases.

But the low rate of inflation is a concern to the Fed and could lead officials to continue the same rate of bond-buying, said PNC chief economist Stuart Hoffman.

“Low inflation has given the Federal Open Market Committee lots of room to continue with its aggressive monetary policy,” he said.

Hoffman predicted Fed policymakers would wait until their January meeting to start tapering the purchases, “but below-target inflation is one factor that might give them pause.”

Hoffman said demand is soft and many businesses are wary about raising prices.

The Labor Department said that lower energy costs last month offset higher prices for food and other items. The index for gasoline dropped 1.6 percent from the previous month, continuing a recent trend of downward prices at the pump.

In addition, the index for natural gas fell 1.8 percent in November, the fifth decline in six months.

So-called core prices, which exclude often-volatile energy and food costs, rose 0.2 percent last month, after a 0.1 percent increase in October. For the 12 months ending in November, core prices are up 1.7 percent, the third straight month at that annual level.