US inflation eases, creates space for Fed stimulus

US consumer prices were flat in November as Americans paid less for cars and gasoline, a further sign of a cool down in inflation that could give the Federal Reserve more room to help a still-weak economy. The Labour Department said Friday the Consumer Price Index was unchanged last month. Economists had expected an increase of 0.1 percent.
Prices spiked earlier in the year but the report showed the trend has shifted. Over the past 12 months, prices have risen 3.4 percent. That marked a second monthly decline from a three-year high in September. Outside food and energy, prices climbed a faster-than-expected 0.2 percent. These so-called core prices rose 2.2 percent in the 12 months through November, up from 2.1 percent in October.
Economists and investors see inflation slowing further over the coming months, which could help convince the Fed to do more to bring down the country's 8.6 percent unemployment rate. Prices for US government debt rose slightly as investors saw the data opening the door a bit wider to stimulative Fed action. US stocks rose and the dollar fell against the euro as investors remained on edge over the eurozone's debt crisis.
The US recovery has picked up momentum over the past few months, but the Fed on Tuesday warned that turmoil in Europe still presents a big risk to the US economy and it kept the option of further monetary stimulus on the table. In an appearance before Congress on Friday, New York Federal Reserve Bank President William Dudley defended a decision by the US central bank to provide dollars for banks overseas, warning of the risks of disruptive asset sales if liquidity dried up.
A 2.4 percent drop in gasoline prices and a 0.3 percent decline in the cost of new vehicles dragged down overall prices in November. Prices for food rose 0.1 percent, while within the core index, prices for apparel jumped 0.6 percent. Many economists have said the Fed could try to give the economy a bit of help at a meeting on January 24-25 by laying out forecasts for interest rates that could underscore its willingness to keep borrowing costs ultra-low for a prolonged period.
The US central bank has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related bonds in a further attempt to stimulate a robust recovery. Some Fed watchers also think the US central bank will step up bond buying later in 2012.