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Washington - US consumer prices have recorded their biggest drop in nearly six years in November as fuel prices tumble, but did little to change views the Federal Reserve would start raising interest rates in mid-2015.
The Labour Department says its Consumer Price Index (CPI) fell 0.3%, the largest decline since December 2008, after being flat in October. The CPI increased 1.3% in the 12 months to end November, the smallest gain in nine months, after advancing 1.7% in October.
The US central bank offered an upbeat assessment of the economy and signalled 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.
Low inflation
The Fed said it expected inflation to rise gradually toward its 2% 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% from October and increase 1.4% 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 Labour Department report also showed average weekly earnings, adjusted for inflation, recorded their biggest gain in six years in November.
US stocks rallied on the Fed's vote of confidence in the economy, while prices for US Treasury debt fell. The dollar jumped against a basket of currencies.
Plunging crude oil prices, which hit a new 5-1/2 year low this week on increased shale production in the United States and slowing global demand, are likely to keep overall inflation in check for while.
GDP fall
Underlying price pressures are also ebbing a bit after showing some signs of creeping up in October, but this could also be temporary as the cost of rental accommodation continues to push higher.
Stripping out food and energy prices, the so-called core CPI edged up 0.1% after rising 0.2% in October. In the 12 months until November, the core CPI rose 1.7% after increasing 1.8% in October.
"If they (Fed policymakers) delay tightening due to low oil prices, it will be out of caution for the potential economic impact," said Jay Morelock, an economist at FTN Financial in New York.
"If the fall in energy prices continues, the loss of capital spending by energy companies could cause GDP to fall in the first half of the year."
