Inflation is dead ... for now

Consumer prices, 'core' reading both unchanged in November, showing far less inflation than forecast.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Prices paid by consumers stayed in check in November, according to the government's key inflation measure released Friday, as price pressures came in well below Wall Street forecasts.

The Consumer Price Index, the government's main inflation gauge, was unchanged in November, the Labor Department reported, after falling 0.5 percent in October on falling gasoline prices. Economists surveyed by Briefing.com had forecast a 0.2 percent rise in the CPI.

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The so-called core CPI, which strips out volatile food and energy prices, also was unchanged after a 0.1 percent gain in October. Economists had forecast that closely watched reading would be up 0.2 percent as well.

"The inflation scare of 2006 is over," wrote Kenneth Beauchemin, U.S. economist for research firm Global Insight. He said with the energy price surge behind us, key inflation measures should be within the Federal Reserve's comfort zone in 2007.

The November readings left core CPI up 2.6 percent from a year earlier, down from 2.7 percent in October and 2.9 percent in September. That's closer to the Fed's presumed target of increases of about 1 to 2 percent for similar core inflation measures.

The September report raised fears that core CPI was getting out of hand and that the Fed might raise interest rates further to fight inflation.

When the Fed left rates unchanged Tuesday, its statement noted that "readings on core inflation have been elevated" but that "inflation pressures seem likely to moderate over time." This report seemed to show that decline.

Fed officials have made numerous comments about persistent inflation pressures in recent weeks. But Friday's report gave a lift for those hoping that the inflation pressures have lessened enough that the Fed will be able to start cutting rates early next year to combat a softening economy without worrying about inflationary pressures.

On Wall Street, investors welcomed the report. Stocks rallied, pushing the Dow industrials further into record territory. And Treasury bonds rallied, sending the yield on the 10-year note down to 4.52 percent from 4.60 percent before the report. Bond yields and prices move in opposite direction.

Still, there are some signs that inflation pressures aren't dead and buried yet.

The report showed a continued decline in energy prices, which were down 0.2 percent in November, though that was far smaller than the 7 percent declines seen in both September and October. But prices also fell for other goods and services, including food, clothing, cars and trucks, and phone service.

Gasoline prices slid a seasonally adjusted 1.6 percent from October. But prices have rebounded since this reading was taken.

Patrick Jackman of the Bureau of Labor Statistics said that the Department of Energy figures on gasoline prices so far in December show that if all other prices stay the same and gasoline stays at the current level, overall CPI would be up 0.3 percent in the next report, due to the rebound in gasoline prices.

Jackman said rents are also likely to remain an inflationary pressure in December and going forward, due to a tight supply of rental properties and a reluctance by many Americans to buy their own homes due to concerns about recent declines in home prices.

But the Labor Department does not factor home prices into CPI. Instead its estimate for housing costs is based on rents, even though nearly two thirds of Americans own their homes.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.