U.S. core CPI slows in November, apparel prices tumble

Underlying U.S. consumer inflation slowed in November amid weak healthcare costs and the biggest drop in apparel prices since 1998.

The moderation in underlying prices will likely attract the attention of Federal Reserve officials meeting on Wednesday for a second day. There are concerns among some policymakers that the factors behind the tame inflation could prove more persistent.

"Fed officials who think inflation is critical for the economy's development and future success will not be heartened by today's reading on CPI inflation," said Chris Rupkey, chief economist at MUFG in New York.

The Labor Department said its Consumer Price Index excluding the volatile food and energy components ticked up 0.1 percent also as prices for airline fares and household furnishing fell. The so-called core CPI advanced 0.2 percent in October.

As a result, the annual increase in the core CPI slowed to 1.7 percent in November from 1.8 percent in October.
The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has consistently undershot the U.S. central bank's 2 percent target for almost 5-1/2 years.

The overall CPI increased 0.4 percent in November after edging up 0.1 percent in October. That raised the year-on-year increase in the CPI back to 2.2 percent from 2.0 percent in October.

Prices for U.S. Treasuries rose on the core CPI data, while the dollar fell against a basket of currencies.

The mixed CPI report probably has little impact on expectations that the Fed will raise interest rates at the end of Wednesday's meeting, encouraged by a tightening labor market and strengthening economy, which policymakers believe will boost inflation over time. The central bank has increased borrowing costs twice this year and has forecast three rate hikes in 2018.

"The report is certainly not weak enough to stop the Fed from tightening today, but it could result in the tone of the statement being slightly less hawkish than it would have been with a consensus-like reading," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Last month, gasoline prices rebounded 7.3 percent after falling 2.4 percent in October. Food prices were unchanged for a second straight month. The cost of rental accommodation rose 0.3 percent, matching the increase in October.

Owners' equivalent rent of primary residence gained 0.2 percent after rising 0.3 percent in October.
The cost of healthcare services slipped 0.1 percent, the first drop since May. The cost of doctor visits fell 0.8 percent last month. In the 12 months through November, the price of doctor visits fell 1.8 percent, the biggest decline since records started in 1947.

Apparel prices dropped 1.3 percent, the largest drop since September 1998. New motor vehicle prices rose 0.3 percent after two straight monthly declines.