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Core consumer inflation flat in November:

Year-over-year gain in core prices falls to 2.2%

By Rex Nutting, MarketWatch
Last Update: 8:54 AM ET Dec 22, 2006

http://tinyurl.com/te4lw

WASHINGTON (MarketWatch) -- Consumer prices were flat in November, the Commerce Department reported Friday, bringing the year-over-year increase in core inflation down to 2.2%, closer to the Federal Reserve's comfort zone of 2%

The personal consumption expenditure price index was unchanged, as was the core PCE price index, which excludes food and energy prices.

It was the lowest core inflation in four years. Core prices have risen at a 1.8% annual rate over the past three months.

Before November's report, core prices had risen 2.4% on a year-over-year basis for three months in a row, heightening the Fed's concerns that inflation may not retreat as expected and that further hikes in U.S. interest rates could be needed.

The government also reported that personal incomes rose 0.3% in November following a 0.3% gain in October.

Employee compensation rose 0.4%. Real disposable incomes also increased 0.3%

Economists, as polled by MarketWatch, had expected incomes to rise 0.4%

Per-capita incomes rose to $32,280 per year from $32,218.
Consumer spending, meanwhile, increased 0.5%, as expected. It was the biggest jump in nominal spending since July. With prices unchanged, inflation-adjusted spending also increased 0.5%, matching October's gain.

With spending rising faster than incomes, the personal savings rate fell to negative 1% from negative 0.7% in September and October. The savings rate has been negative for 20 straight months.

The savings rate can be negative when consumers borrow or sell assets to support current consumption.

Inflation-adjusted, or real, spending on durable goods increased 1.6%, the biggest increase since July. Real spending on nondurable goods rose 1%. Real spending on services increased 0.1%, the smallest gain since June.

In a separate report, the Commerce Department said orders for durable goods rose 1.9% in November after an 8.2% plunge in October, as computer and aircraft orders bounced back. However, orders for core capital goods fell for the second straight month.

Rex Nutting is Washington bureau chief of MarketWatch.