Tamer energy, food prices keep consumer prices calm in November

Friday, December 17th 2004, 3:08 pm

By: News On 6

WASHINGTON (AP) _ Consumer prices calmed down in November, helped by smaller increases in energy and food. That means the Federal Reserve probably will continue raising interest rates only gradually to keep inflation under control.

The government's closely watched inflation barometer, the consumer price index, rose 0.2 percent last month, compared with a 0.6 percent spike in October, the Labor Department reported Friday.

``Inflation continues to creep upward slowly,'' said Joel Naroff, president of Naroff Economic Advisors.

The jump in October reflected surging energy prices, as crude oil costs hit record highs, and soaring food prices related to supply disruptions from a string of hurricanes that ripped through the Southeast. Energy and food costs, however, moderated last month, helping to restrain the overall CPI.

When energy and food prices are removed, the core inflation rate also rose by 0.2 percent in November for a second month in a row. That suggested other prices remain relatively well-behaved.

The latest inflation readings matched economists' forecasts.

``This validates Fed policy-makers' thinking that they are going to continue to raise interest rates at a measured pace into 2005,'' said Ken Mayland, president of ClearView Economics.

Fed Chairman Alan Greenspan and his colleagues boosted short-term interest rates Tuesday by one-quarter percentage point to 2 1/4 percent, the fifth increase this year. Fed policy-makers also stuck with their position that future rate increases would be gradual. ``Inflation and longer-term inflation expectations remain well-contained,'' they said.

From a consumer's point of view, rising inflation can strain the family budget. After adjusting for inflation, weekly earnings of nonsupervisory workers dropped 0.4 percent in November from the previous month, the department said in a separate report. It marked the second month in a row that weekly earnings declined by that amount.

Earnings have fallen 1.6 percent since November of last year, the largest 12-month decline since January 1996.

With the economy expanding at a solid pace, inflation has picked up this year.

In the first 11 months of 2004, consumer prices are increasing at an annual rate of 3.7 percent, compared with a 1.9 percent rise for all of 2003. That acceleration mostly reflects higher energy costs.

Still, excluding energy and food prices, core inflation so far this year rose at a rate of 2.3 percent, up from the 1.1 percent rise in core prices registered last year.

``The trend in inflation is still clearly to the upside,'' said Mark Vitner, senior economist at Wachovia.

In November, energy prices rose 0.2 percent, down from the 4.2 percent leap in October. The moderation was led by a 1.8 percent decline in gasoline prices.

Oil prices, which hit a record high of just over $55 a barrel in late October, have moderated, helping to provide some price relief. Oil prices are hovering close to $46 a barrel.

Food prices, meanwhile, increased 0.2 percent in November, down from a 0.6 percent advance. Falling prices for beef and veal, poultry and dairy products blunted rising prices for fruits, vegetables and pork.

Elsewhere in the November CPI report: clothing prices nudged up 0.1 percent; medical care costs rose 0.2 percent; education costs, including tuition and books, increased 0.6 percent; new automobile prices went up 0.7 percent; airfares advanced 1 percent. Personal computer prices dropped 2.7 percent, and lodging prices fell 0.5 percent.

Wholesale prices in recent months have been outpacing consumer prices. In October, wholesale prices spiked up by 1.7 percent, the largest rise in more than 14 years. In November, wholesale prices went up by a strong 0.5 percent. Some companies have found it difficult to pass along to consumers all the increases in their costs, especially for raw materials, economists say.