Cheaper gas pushes U.S. inflation lower

A steep fall in gas costs pushed down a measure of U.S. consumer prices last month, keeping inflation mild.

The seasonally adjusted consumer price index dropped 0.3 per cent in November from October, the Labor Department said Friday. Gas prices fell 7.4 per cent, the steepest drop in nearly four years. That offset a 0.2 per cent rise in food prices.

In the past year, consumer prices have risen 1.8 per cent, down from October's 12-month increase of 2.2 per cent.

Core prices higher

Excluding volatile food and gas, prices ticked up 0.1 per cent in November and have risen 1.9 per cent in the past year. Higher rents, airline fares and new cars pushed up core prices. The cost of clothing and used cars fell.

High unemployment and slow wage growth have made businesses reluctant to raise prices. Many worry higher prices could drive away customers. That's helped keep inflation mild.

Modest inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation also makes it easier for the Fed to continue with its efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.

The Fed said Wednesday that it now plans to keep the short-term interest rate it controls at nearly zero until the unemployment rate falls to at least 6.5 per cent and inflation isn't expected to top 2.5 per cent in the next two years.

It was the clearest sign yet that they will keep rates super-low even after unemployment falls further and the economy picks up.

Unemployment was 7.7 per cent last month and the Fed projects it will stay above 6.5 per cent until late 2015. The Fed also projects inflation will stay at or below 2 per cent for the next three years.

The Fed also said it would continue purchasing $85 billion in Treasury bonds and mortgage-backed securities each month in an effort to push down longer-term interest rates.

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