U.S. consumer prices fall on gasoline; rate hike likely in 2015

Wed Dec 17, 2014 5:10pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled, but did little to change views the Federal Reserve would start raising interest rates in mid-2015.

The Labor Department said on Wednesday its Consumer Price Index (CPI) fell 0.3 percent, the largest decline since December 2008, after being flat in October. The CPI increased 1.3 percent in the 12 months through November, the smallest gain in nine months, after advancing 1.7 percent in October.

Fed officials shrugged off the disinflationary trend as transitory in a statement at the end of a two-day meeting. The U.S. central bank offered an upbeat assessment of the economy and signaled it was on track to raise borrowing costs in 2015.

"Conditions could be in place to raise rates during the first half of next year," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Fed said it expected inflation to rise gradually toward its 2 percent target. It has kept its short-term interest rate near zero since December 2008.

Wall Street had expected the CPI to dip only 0.1 percent from October and increase 1.4 percent from a year earlier.

While inflation is trending lower, job growth has shifted into higher gear and the pace of slack absorption in the economy has accelerated in recent months. The Labor Department report also showed average weekly earnings, adjusted for inflation, recorded their biggest gain in six years in November.

U.S. stocks rallied on the Fed's vote of confidence in the economy, while prices for U.S. Treasury debt fell. The dollar jumped against a basket of currencies.   Continued...

A woman pumps gas at a station in Falls Church, Virginia December 16, 2014.
REUTERS/Kevin Lamarque