Consumer inflation frozen in November as falling energy prices offset jump in auto prices

Friday, December 14th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ Another big drop in energy prices left inflation at the consumer level frozen in place during November, despite the biggest increase in the cost of new cars in more than a decade, the government said Friday.

The Labor Department said that its closely watched Consumer Price Index showed no increase last month after having fallen by 0.3 percent in October as America's first recession in a decade continued to hold down inflation.

So far this year, inflation at the consumer level is rising at an annual rate of just 1.9 percent, reflecting the dampening effect of a recession, with thousands of layoffs acting to hold down wage demands and various retailers slashing prices to entice consumers to keep spending during hard times.

The 1.9 percent inflation rate this year compares to inflation increases of 2.7 percent in 1999 and 3.4 percent last year, which had been the worst performance in nine years.

In both of those years, energy costs shot up at double-digit rates. Energy costs so far this year are falling at a 11.1 percent rate as oil producing countries have battled against a global glut of oil, reflecting the onset of what many fear is a worldwide recession.

In another reflection of how the recession was dampening economic activity, the Commerce Department reported today that businesses slashed their inventories by a sharp 1.4 percent in October following a 0.6 percent reduction in September.

Businesses have been struggling to reduce their backlog of unsold goods as the recession has dampened demand for their products. Analysts believe that all of these reductions are setting the stage for a return of economic growth next year if demand picks up as expected.

The Federal Reserve cut interest rates for an 11th time on Tuesday, pushing a key rate down to the lowest level in 40 years as it continued to try to jump-start an economy that tumbled into a recession last March and was dealt another severe blow with the Sept. 11 terrorist attacks.

The low inflation rates will give the Fed room to cut rates even further if necessary to guarantee a rebound in economic activity next year, analysts believe.

The CPI report showed that energy prices dropped by 4.4 percent after falling by an even bigger 6.3 percent in October. Gasoline pump prices were down 10.1 percent while home heating oil costs and the price of electricity in the home also declined.

Only natural gas showed an increase last month, rising by 2.6 percent, but analysts said even with this gain natural gas prices remain far below the high levels hit last winter during a period of gas shortgages in many parts of the country.

Food costs were also down last month, declining 0.1 percent as the cost of pork, vegetables and poultry all declined.

Outside of the volatile food and energy areas, the so-called core rate of inflation took a big jump in November, rising by 0.4 percent after four straight months of more modest 0.2 percent gains. In fact, the November increase was the biggest since a similar 0.4 percent rise in January of 1996.

However, analysts noted that much of the cost pressures came in two areas, a huge 3.9 percent jump in tobacco prices and a 0.6 percent rise in new car costs, which was the biggest gain for autos since January 1991. Analysts said the big jump in car prices reflected a bounceback after steep discounting was put in place in October as dealers struggled to lure customers back into showrooms following the terrorist attacks.