Persistently low inflation allows Fed policy makers, scheduled to end a two-day meeting Dec. 17, to exercise patience in raising the benchmark interest rates that they’ve held near zero since 2008 to spur growth and trim unemployment. Plunging fuel costs also will free up money that households can spend on other goods and services, bolstering the economic expansion.
“Inflationary pressures are temporarily on the backburner,” Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, said before the report. “The Fed will probably take its time to raise rates.”
Estimates for consumer prices in the Bloomberg survey ranged from little change to a drop of 0.3%.
Core prices rose 0.1%, matching the median forecast of economists surveyed by Bloomberg. That followed a 0.2% advance the previous month.
The report showed the core CPI measure increased 1.7% from November 2013, following a 1.8% rise in the prior 12-month period.
Energy costs decreased 3.8% from a month earlier, led by a 6.6 % plunge in gasoline, the biggest since December 2008.
Households’ fuel bills continue to fall. The average cost of regular gasoline dropped to $2.51 a gallon on Dec. 16, the cheapest since 2009 and down from this year’s high of $3.70 reached in April, according to AAA, the biggest U.S. auto group.
Lower prices at the pump mean Americans can spend more elsewhere. Retail sales rose 0.7% in November, the most in eight months, as consumers snapped up electronics, clothing and furniture, Commerce Department figures showed. Industry data also indicate demand for vehicles remains robust.
The cost of living decline helped boost paychecks. Hourly earnings adjusted for inflation rose 0.6%, after a 0.1% increase the prior month, a separate report from the Labor Department showed. They were up 0.8 % over the past 12 months, the most since February.
The Fed’s preferred price gauge, linked to consumer spending, rose 1.4 % in October compared with the same month last year and hasn’t been above the central bank’s 2% goal since March 2012.
Fed officials weighing when to raise rates are likely to focus on a jobless rate that’s fast approaching their goal for full employment, even as declining oil prices hold inflation below their target, economists said.
Policy makers, at their meeting Dec. 17, will look past low inflation and drop a pledge to keep interest rates near zero for a “considerable time” as the Fed seeks an exit from the loosest monetary policy in its 100-year history, analysts said. The Federal Open Market Committee will adopt a word such as “patient” to describe its approach to policy, according to 68% of economists surveyed by Bloomberg.
Shoppers are benefiting from lower prices as retailers began offering holiday deals earlier than ever this year. That drew customers and helped companies including Costco Wholesale Corp., L Brands Inc. and Gap Inc. to report November same-store sales that exceeded analysts’ estimates.
Businesses also experimented with spreading their deals over a longer period. Express Inc. began offering 50% off everything starting Nov. 25 through noon Nov. 28, and Target Corp. rolled out pre-Black Friday deals of up to 60% off on some items.
Delta Air Lines Inc. is among companies benefiting from both the drop in fuel costs and an improving economy.
“We continue to price to demand,” Edward Bastian, president of Atlanta-based Delta, said in a Dec. 11 teleconference with investors. “Demand is very solid.”
That means that the carrier will “be able to secure as much if not all of that fuel savings directly to the bottom line for 2015.”
The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 % of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices fell more than forecast in November, led by the biggest drop in energy costs in more than a year, while the import cost gauge declined for the fifth consecutive month.
Another report today showed the current-account deficit widened in the third quarter as the shortfall on secondary income climbed to a record. The gap, the broadest measure of international trade because it includes income payments and government transfers, increased 1.9% to $100.3 billion from a revised $98.4 billion in the second quarter, according to Commerce Department figures.
The median forecast of economists in a Bloomberg survey called for the deficit to shrink to $97.5 billion from a previously reported $98.5 billion.
The deficit on secondary income, which includes government and private transfers, jumped to $34.9 billion from $22 billion in the second quarter, which was depressed by fines and penalties paid to the U.S. government by foreign institutions.
That surge swamped a narrowing in the trade deficit and a larger surplus in primary income, which increased to $59 billion, the biggest since the last three months of 2011, from $54.8 billion. The improvement reflected gains in income from American investments in foreign stocks.