NEW YORK (Reuters) - Consumer prices fell in November for the first time in six months, pointing to muted inflation pressures that should allow the Federal Reserve to stay on its ultra-easy monetary policy path as it nurses the economy back to health.
The Labor Department said on Friday its Consumer Price Index dropped 0.3 percent last month as a sharp decline in gasoline prices offset increases in other areas. It was also the largest drop since May and followed a 0.1 percent gain in October.
Economists polled by Reuters had expected consumer prices to fall 0.2 percent.
SAM BULLARD, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA
”Energy generally drove prices down which is helpful for year-end shopping for consumers.
But food prices are up again from the lingering effect of the drought earlier this year. We expect this to continue pick up into April and maybe May. We are already seeing this on the wholesale level.
Headline inflation started the year at about 3.0 percent and ending at about 2.0 percent. This reflects the sluggish growth we’ve had this year. With demand expected to be weak, we don’t see inflation being problematic next year. This puts inflation in the back burner for the Fed so it could focus on the employment situation.”
TIM GHRISKEY CHIEF INVESTMENT OFFICER OF SOLARIS GROUP IN BEDFORD HILLS, NEW YORK
”The core, right in line with expectations and the top line number, is a negative number which was expected and a little bit more deflationary than expected which shows we have seen this drop in energy prices over the month of November due to supplies and very constrained demand as well.
It shows that despite all the action by the Fed to stimulate the economy we are still seeing very little, if any, inflation in the system. That is largely because the biggest component of inflation is wages and we still have a very high level of unemployment. Workers simply have no bargaining power in this type of environment.”
ERIC STEIN, VICE PRESIDENT AND PORTFOLIO MANAGER, EATON VANCE INVESTMENT MANAGERS, BOSTON
“It was certainly a lower-than-expected number for the Consumer Price Index - both on the core and headline indexes. U.S. Treasuries rallied one to two basis points across the curve following this number. Clearly the Fed is now targeting unemployment, but given this low CPI print they will, if anything, feel more emboldened to maintain their current stance of very easy monetary policy (not that if we had a higher print it would have changed much).”
IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT
“Overall, a weaker than expected release and illustrates very little inflationary concerns and leaves the FOMC’s new QE4 program on safe footing for the foreseeable future.”
“A slightly larger than expected decline in energy prices contributed to a slightly larger drop in the overall CPI increase. The modest increase of the price index excluding food and energy - just a tenth of a percentage point -- is probably not welcome at this juncture. We’d like to see a pickup in core inflation in reaction to a stronger economy. A sagging inflation rate right now is not a good thing.”
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON
“The inflation data continues to be benign and there is very little in the way of price pressures in the economy. That therefore justifies the Federal Reserve’s action to keep a very accommodative monetary policy.”
JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDE MARKETS, WOODCLIFF LAKE, NEW JERSEY
“Inflation is tame but the more successful the Fed’s economic support policies are, and the more they restore business and consumer confidence the greater the possibility that prices and excessive liquidity resume their historical relationship.”
BONDS: U.S. bond prices remained steady at slightly higher level
STOCKS: Stocks briefly turned negative
FOREX: The dollar held losses against the yen
Americas Economics and Markets Desk; +1-646 223-6300