Gas price plunge keeps wholesale inflation tame
- Report shows inflation in check at wholesale level
- Steep drop in gas prices behind drop in monthly wholesale measure
- Gas prices are expected to keep dropping through year-end
WASHINGTON (AP) — Cheaper gas drove down a measure of wholesale prices in November for the second straight month, a sign inflation remains in check.
The producer price index, a closely watched measure of wholesale price trends, fell 0.8% last month. It's the steepest drop since May, the Labor Department said Thursday. That follows a 0.2% decline in October. The index measures the cost of goods before they reach the consumer.
Gas prices fell last month by the most in more than three years. Food prices, however, rose by the most in nearly two years, pushed higher by costlier beef and vegetables.
And the price of gasoline for consumers is expected to keep falling through year-end. In the past year, wholesale prices have increased 1.5%. That's the lowest annual pace in four months.
Gas prices had risen sharply over the summer, pushing up both the producer and consumer price indexes, a measure of inflation pressures for consumers.
Since then, the cost of gasoline, home heating oil and natural gas has fallen back.
And, nationwide, a gallon of gasoline cost $3.30 on average Thursday, according to AAA, down 13 cents in the past month and nearly 50 cents since mid-October.
Excluding volatile food and gas, core producer prices ticked up 0.1% in November and 2.2% the past year.
Low inflation means consumers have more money to spend, which helps the economy. It also gives the Federal Reserve more room to keep interest rates low in an effort to spur economic growth. If prices were to begin rising rapidly, the central bank might be forced to raise rates in response.
The Fed said Wednesday it plans to keep the short-term interest rate it controls near zero until the unemployment rate falls to at least 6.5% and inflation isn't expected to top 2.5% the next two years.
In a statement, Fed policymakers said that they expect "inflation over the medium term will likely run at or below its 2% objective."