The seasonally adjusted consumer price index dropped 0.3 per cent in November from October, the Labor Department said Friday. Gas prices fell 7.4 per cent, the biggest drop in nearly four years. That offset a 0.2 per cent rise in food prices.
In the past year, consumer prices have risen 1.8 per cent, down from October's 12-month increase of 2.2 per cent.
Excluding the volatile food and gas categories, prices ticked up 0.1 per cent in November. Core prices have risen 1.9 per cent in the past year — below the Federal Reserve's annual target of 2 per cent.
Higher rents, airline fares and new cars pushed up core prices last month. The cost of clothing and used cars fell.
"In simplest terms, inflation is not a problem," Jim Baird, chief investment strategist at Plante Moran Financial Advisors, said. Lower inflation "is a real positive that should provide modest relief for households dealing with limited income growth."
High unemployment and slow wage growth have made businesses reluctant to raise prices. Many worry higher prices could drive away customers. That's helped keep inflation tame.
Modest inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation also makes it easier for the Fed to continue with its efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.
Gasoline prices have fallen sharply in the past two months after spiking in the late summer. A gallon of gas cost an average of $3.29 (86 cents a litre) nationwide Friday. That's 15 cents less than a month ago and 50 cents less than in mid-October.
The increase in food prices was smaller than many economists expected. This summer's drought in the Midwest, which scorched corn and soybean crops, has pushed up food prices. But the increase hasn't been dramatic so far. Food costs have risen 1.8 per cent in the past 12 months.
Some items have seen big increases. The cost of milk, cheese and other dairy products have risen 0.8 per cent in each of the past two months. That could reflect the higher cost of animal feed, which usually includes corn and soybeans. Cereals and baked goods rose 0.3 per cent last month. But prices for the broad category of meat, chicken, fish and eggs fell in November, after a big gain the previous month.
Shoppers may face further increases soon. Wholesale food costs jumped 1.3 per cent last month, according to a separate report Thursday, the most in nearly two years.
Beef prices jumped the most in 4 1/2 years, and vegetable costs also rose sharply. Grocery stores may pass on some of those costs to consumers in the coming months.
With inflation in check, the Fed said Wednesday that it now plans to keep the short-term interest rate it controls at nearly zero until the unemployment rate falls to at least 6.5 per cent, as long as inflation isn't expected to top 2.5 per cent in the next two years.
It was the clearest sign yet that they will keep rates super-low even after unemployment falls further and the economy picks up.
Unemployment was 7.7 per cent last month and the Fed projects it will stay above 6.5 per cent until late 2015. The Fed also projects inflation will stay at or below 2 per cent for the next three years.
The Fed also said it would continue purchasing $85 billion in Treasury bonds and mortgage-backed securities each month in an effort to push down longer-term interest rates.