U.S. consumer prices were flat in November, but a bounce back in the annual inflation rate from a four-year low will probably give the Federal Reserve cover to start dialing back its massive monetary stimulus.
The Labor Department said on Tuesday its Consumer Price Index was restrained last month by declines in gasoline and natural gas prices, after slipping 0.1 percent in October.
In the 12 months through November, the CPI rose 1.2 percent. It had increased 1.0 percent in October, the smallest advance since October 2009.
“This is not a game changer. The composition of price changes suggest we are going to see sub-2 percent inflation for some time to come,” said Laura Rosner, economist at BNP Paribas in New York.
Economists polled by Reuters had forecast consumer prices nudging up 0.1 percent last month and increasing 1.3 percent from a year ago.
Stripping out the volatile energy and food components, the so-called core CPI rose 0.2 percent after rising by 0.1 percent for three consecutive months.
That took the increase over the past 12 months to 1.7 percent, rising by the same margin for a third straight month.
The Fed targets 2 percent inflation, although it tracks a gage that tends to run a bit below the CPI. The inflation report was released as Fed officials were due to start a two-day meeting to assess the economy and deliberate on monetary policy.
Though some Fed officials are concerned about inflation being too low, that will probably not stop the U.S. central bank from reducing the pace of its monthly bond purchases.
Key data including employment, retail sales and industrial production have all pointed to an economy that is on an upswing.
Some economists expect it to announce a reduction in its $85 billion monthly bond buying program at the end of the meeting on Wednesday, although more believe it will wait until January or March before trimming its purchases.
Persistently low inflation would probably serve as a caution to officials and see the Fed keeping interest rates low for a long time even after it begins to reduce its bond purchases.
A 1.6 percent drop in gasoline prices and a 1.8 percent fall in the cost of natural gas offset increases in electricity, keeping inflation subdued last month.
Gasoline prices had dropped 2.9 percent in October, while natural gas prices had declined 1.0 percent. Food prices rose 0.1 percent in November after ticking up by the same margin the prior month.
Within the core CPI, apparel prices fell for a third straight month in November, reflecting discounts offered by retailers to lure shoppers and reduce inventory.
There were, however, gains in rent, which accounts for about a third of the core CPI. The rent index increased 0.3 percent after gaining 0.1 percent in October.
Owners' equivalent rent of primary residence increased 0.3 percent after rising 0.2 percent in October.
Demand of rental housing has been rising as Americans shift away from owning a home, putting upward pressure on rents.
Medical care costs were flat, while prices for new vehicles fell for a second straight month.