Falling energy prices help inflation moderate to tiny 0.1 percent rise in November

<br>WASHINGTON (AP) _ Consumer prices edged up a tiny 0.1 percent in November, the smallest gain since July, as the first decline in energy prices since May helped offset another big jump in medical costs.

Tuesday, December 17th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Consumer prices edged up a tiny 0.1 percent in November, the smallest gain since July, as the first decline in energy prices since May helped offset another big jump in medical costs.

Meanwhile, the Federal Reserve reported Tuesday that U.S. industry managed a slight 0.1 percent increase in production in November compared to October. It was the first monthly gain since last July.

The small advance in output at the nation's factories, mines and utilities followed a big 0.6 percent drop in October. For more than two years, the nation's factories have been the hardest hit sector of the economy, leading the country into a recession in 2001 and so far this year still suffering from job losses as manufacturing companies continue to deal with weak demand for their products.

The small 0.1 percent November in the Labor Department's closely watched Consumer Price Index was even better than had been expected and provided further evidence that the lackluster economic recovery and a rising jobless rate were helping to keep a lid on inflation.

The 0.1 percent rise in consumer prices in November followed a 0.3 percent increase in October and was the smallest monthly gain since prices rose by a similar 0.1 percent in July.

So far this year, consumer prices are rising at a modest annual rate of 2.6 percent. The moderation in prices is especially remarkable given the fact that energy prices have been climbing rapidly for most of this year after having fallen in 2001.

The absence of inflationary pressures has allowed the Federal Reserve to keep interest rates at their lowest level in four decades, hoping to foster more borrowing on the part of consumers and businesses and thus bolster the weak economy, which has struggled this year to emerge from the country's first recession in a decade.

President Bush, mindful of how a weak economic doomed his father's re-election bid, earlier this month shook up his economic team and has pledged to produce a new economic stimulus package of proposed tax cuts to jump-start growth in advance of the 2004 election.

In a separate report, the Commerce Department said that construction of new homes was up 2.4 percent in November as the lowest mortgage rates since the 1960s continued to make housing the strongest sector of the economy.

The increase pushed housing construction to a seasonally adjusted annual rate of 1.697 million units in November after construction starts had dipped 8.4 percent in October.

For November, energy prices fell by 0.2 percent after having soared by 1.9 percent in October. Energy prices had been rising for four consecutive months, gains that were blamed in part about growing anxiety over what a possible U.S. invasion of Iraq would do to world oil prices.

Analysts cautioned that even with last month's retreat, energy markets remain jittery. The price of a barrel of crude oil on world markets soared to above $30 on Monday, its highest level in two months, as oil markets responded to a political crisis in Venezuela, a major oil producing country.

But for November, American motorists were able to enjoy a 0.4 percent fall in gasoline prices, the biggest decline since a 2.8 percent drop in May. Home electricity prices were down 0.3 percent, while natural gas dropped by 0.1 percent and home heating oil costs were down 0.2 percent.

So far this year, energy costs have been rising at an annual rate of 12.5 percent, a sharp turnaround from a 13 percent drop in energy prices for all of 2001.

Food and beverage costs were up 0.3 percent in November, the largest jump in this category since January. The increase was blamed on higher prices for beef, pork and poultry as well as a big jump in the price of both vegetables and fruits.

Outside of the volatile food and energy categories, the so-called core rate of inflation saw a rise of 0.2 percent in November, the same increase registered in October.

The biggest jump in this category occurred in health costs, which were up by a sharp 0.6 percent in November, the same increase as in October. Over the past 12 months, medical costs are up by 5 percent, the biggest increase of any category outside of energy.

In other price changes in November, clothing costs fell by 0.4 percent while the price of new cars was down by 0.1 percent and airline fares were down by an even larger 0.8 percent.