U.S. consumer prices flat in November as energy costs dropped for third straight month, adding to evidence that inflation has cooled

Cindy Allen

WASHINGTON , December 16, 2011 (Associated Press) – U.S. consumer prices stayed flat in November, further evidence that inflation has cooled off.

Energy costs dropped for the second straight month, which offset higher prices that Americans paid for food, clothes and medical services.

The consumer price index was unchanged in November, the Labor Department said Friday. That followed a 0.1 percent decrease in October.

Excluding volatile food and energy costs, so-called "core" prices rose 0.2 percent.

A spike in oil and other commodity costs drove up prices last year. In the 12 months ending in November, prices rose 3.4 percent, below October's 3.5 percent pace and the smallest year-over-year rise since April.

Core prices have risen 2.2 percent in the past 12 months, the most in more than three years. More expensive clothing and higher prices for rent have driven the core index up in that time.

Clothing prices have increased at the fastest pace in twenty years over the past 12 months, partly because of higher cotton costs. Clothing costs jumped 0.6 percent last month, the seventh increase in eight months. In the past 12 months, clothing prices have risen 4.8 percent.

Rental costs rose 0.2 percent last month, and 2.4 percent in the past year. That reflects greater demand for apartments and rental properties, as the housing market struggles.

Still, many economists say inflation probably has peaked and is likely to decline next year. Prices for oil and many agricultural commodities have fallen from highs reached in the spring. And slower growth in China and a possible recession in Europe have reduced global demand for energy and other goods.

Gas prices have also declined. Nationwide, gasoline cost an average of $3.26 a gallon Thursday, down from $3.41 a month ago, according to AAA.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner, before inflation erodes its value.

But when prices grow more slowly after a period of sharp cost increases, consumers feel a little wealthier and step up spending. That can lift the economy because consumer spending accounts for 70 percent of economic activity.

Americans increased their spending over the summer as prices eased. As a result, the economy expanded at an annual rate of 2 percent after barely growing in the first half of the year. Economists expect slightly stronger growth in the final three months of the year, in part because of higher consumer spending.

Federal Reserve policymakers and many private economists expect that inflation will fall next year. That would give the central bank more latitude to hold down interest rates and take other steps to stimulate the economy.

The Fed declined to make any new moves at its latest meeting Tuesday. But policymakers repeated their commitment to keep short-term interest rates at a record low near zero until at least mid-2013, as long as the economy remains weak. If there were signs that inflation was increasing to worrisome levels, the Fed would likely raise rates.

The central bank said last month that it expects consumer inflation to fall from about 2.8 percent this year to roughly 1.7 percent next year. That's in the Fed's preferred range for core inflation of about 1.7 percent to 2 percent.

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