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Consumer Price Index drops, inflation under control

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Turns out consumers got an early gift for the holidays last month. The Labor Department reported this morning that its Consumer Price Index dropped 0.3 percent in November.  So, inflation is well under control.  That’s good news for the Federal Reserve. 

Just two days ago, the Fed announced that it’s going to continue trying to stimulate the sleepy economy. Pumping in money, by buying treasuries and mortgage backed securities.

Some economists worry the Fed could spark not just economic growth, but inflation. But today’s numbers show inflation isn’t becoming a problem.  Gas prices alone fell by 7.4 percent.   That’s the biggest drop in almost four years.

Consumer prices actually fell more than many economists expected — including Michelle Girard, senior U.S. economist at the Royal Bank of Scotland.  Girard says this morning’s numbers just strengthen the Fed’s hand.

“Inflation is right in line with the level the Fed would like to see it,” she explains. “That, I think, gives the Fed room to concentrate more on the employment situation and actually getting the unemployment rate down.”

The Fed said Wednesday that it’s going to keep interest rates low until unemployment falls to at least 6.5 percent, as long as the inflation rate stays below 2.5 percent. 

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