Consumer prices plunge, but it won’t last |

Consumer prices plunge, but it won’t last

WASHINGTON – A record drop in energy costs pushed consumer prices down in November at the fastest pace in 56 years. But it won’t last because gasoline prices are rising again and heating costs are expected to soar this winter.The Labor Department report on Thursday showed the Consumer Price Index fell by 0.6 percent last month, the biggest decline since a 0.9 percent fall in July 1949. It reflected a record 16 percent drop in gasoline prices.Pump prices had fallen steadily after hitting a record of $3-plus per gallon in early September. But they edged up slightly in the Energy Department’s latest weekly survey, and private economists said more increases are expected.In addition, analysts are forecasting that home heating bills will be significantly higher than last winter, reflecting higher costs for both natural gas and home heating oil.For November, the underlying or core rate of inflation, which excludes energy and food, rose by 0.2 percent. That matched October’s increase and put both months higher than the 0.1 percent gains recorded for the previous five months.Analysts said this rise reflected mounting inflationary pressures that probably will worsen as the shock of energy costs spills over into other parts of the economy.Costs rose in a variety of areas in November, from housing to hotel rooms and education to medical care. Analysts noted that even with the huge drop in gasoline prices, they still are 16 percent higher than they were in November 2004.”Energy costs are off but still high and everywhere else prices are rising,” said Joel Naroff, chief economist at Naroff Economic Advisors. “Inflation is not out of control, but it is not tame either.”On Wall Street, the Dow Jones industrial average edged down a slight 1.84 point to close at 10,881.67.The Federal Reserve on Tuesday raised interest rates for a 13th time while also indicating that such increases may end soon.Many analysts believe there will be two more increases of one-quarter of a percentage point in January and March, leaving a benchmark – the federal funds rate – at 4.5 percent.Nonetheless, Mark Zandi, chief economist at Moody’s, said this outlook for interest rates could prove too low if inflationary pressures keep up.Richard Yamarone, chief economist at Argus Research in New York, noted that companies that make food, home cleaning supplies and other consumer products have announced price increases, which will add to the pressure.For November, overall energy prices dropped by a record 8 percent. Food prices rose by 0.3 percent for the second straight month.Through the first 11 months of this year, inflation at the consumer level has risen at an annual rate of 3.8 percent, compared with an increase of 3.3 percent for all of 2004. The acceleration has come from energy prices, climbing at a rate of 21.7 percent this year compared with 16.6 percent last year.Excluding food and energy, prices this year are up 2.1 percent, essentially unchanged from last year’s 2.2 percent increase.In other economic news, the Federal Reserve reported that output at factories, mines and utilities rose a solid 0.7 percent in November. That followed a revised increase of 1.3 percent in October, which was the biggest jump in six years.Both months reflected a resumption of production at oil refineries and petrochemical plants along the Gulf Coast.The Labor Department reported that the number of hurricane-related layoffs rose by 2,500 last week to a total of 602,000 layoffs linked to the storms. This was the smallest weekly increase since the government began tracking storm layoffs right after Hurricane Katrina hit in late August.Overall jobless claims totaled 328,000 last week, up 1,000 from the previous week but still at a level that indicates a healthy labor market.—On the Net:Consumer prices: production: http://www.federalreserve.govJobless claims:

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