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Consumer Inflation A Pussycat

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.

But excluding lower costs for food and energy items, the so-called core CPI climbed a sharper-than-expected 0.4 percent --twice the 0.2 percent rise posted in October and the sharpest gain for any month since a matching 0.4 percent rise in January 1996.

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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.

There were two other developments on the economic front:

  • The Commerce Department reported 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.
  • U.S. industrial output declined again in Novembe, but an upswing in auto production limited the overall fall. The Federal Reserve said industrial production, which includes output at factories, mines and utilities, slid 0.3 percent in November, its fourth straight month of decline and the 13th drop in 14 months.

    Nevertheless, the report was a rare better-than-expected reading for the factory sector, which had been hard hit by the recession. Analysts polled by Reuters had expected a larger drop of 0.7 percent in production.

    In a bid to boost the economy, the Fed 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.

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