Consumer Prices Rise 0.8% in Nov 2007

By MICHAEL M. GRYNBAUM  NY Times  December 14, 2007

Inflation, which has remained tame even as oil prices soared in recent months, may finally be on the rise.
Consumers paid 0.8 percent more for a host of common retail goods in November, the biggest monthly increase since Hurricane Katrina, the government reported on Friday. A less volatile measure of the Consumer Price Index, which excludes food and energy costs, ticked up 0.3 percent, suggesting that price increases are bleeding into the broader economy.

A pick-up in prices will complicate efforts by the Federal Reserve as it tries to stave off a substantial slowdown in economic growth. Central bankers may be more reluctant to lower interest rates, a key economic stimulus, out of concern that inflation will flare up.
“It’s certainly getting ugly out there,” wrote Bernard Buhmohl, managing director of the Economic Outlook Group, in a research note this morning. “The rise in the core inflation will likely prevent the Fed from being generous with future interest rate cuts.”

Over the last 12 months, prices have risen 4.3 percent, the fastest pace since last summer, the Labor Department said. A report yesterday showed prices at the producer level rose in November at their fastest rate since in nearly 35 years, a signal that cost pressures will only increase in the months ahead.

For the Fed, a rise in consumer costs throws yet another wrinkle into the current economic puzzle. Problems in the credit and housing markets have plagued the lending industry while an ailing dollar and sky-high oil costs continue to curb consumers’ spending power. The central bank has lowered its benchmark interest rate by a full percentage point since September, but further cuts could be offset by bubbling inflation, which some bankers see as a greater risk to growth.

A separate inflation gauge, the personal consumption expenditures core price index, has stayed near 2 percent, at the high end of the Fed’s so-called comfort zone. The November report will be released next Friday. Surging energy costs accounted for much of last month’s gain, as consumers faced a 9.3 percent markup at the gasoline pump after a 1.4 percent increase in October. Food costs held steady but the price of clothing rose.