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Inflation Isn't Likely to Take Off Anytime Soon, Economists Say -- 2nd Update

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12/11/2019 | 06:14pm EST

By Sarah Chaney

WASHINGTON -- Inflation isn't likely to take off anytime soon, recent readings on prices and labor costs show.

Consumer prices rose at a 2.1% annual pace in November, from 1.8% in October, mainly due to higher energy and shelter costs, the Labor Department said Wednesday.

Meanwhile, U.S. unit labor costs -- a measure of labor costs and production output -- were revised down sharply for the second and third quarters in a Tuesday productivity report.

The readings suggest that companies have less pricing power because of factors including globalization and consumers' growing tendency toward comparison shopping, say economists, who expect these trends to continue even though U.S. unemployment is at historic lows and companies face higher prices for some products tied to tariffs.

"Our outlook is that this tame inflation environment continues," said Kathy Bostjancic, U.S. chief financial economist at Oxford Economics.

Wednesday's consumer-price index figures didn't sway the Fed's decision to hold interest rates steady.

Federal Reserve Chairman Jerome Powell said at a Wednesday press conference that it has been difficult for the central bank to nudge inflation up to its 2% target. "I would say there's more humility than there is confidence in this at this point," he said.

The U.S. placed levies on a range of Chinese imports in September as part of the U.S.-China trade war, but those tariffs don't appear to be having a broad-based inflationary impact yet.

Core consumer prices, which exclude often-volatile food and energy categories, rose 2.3% over the year in November, in line with October.

Overall core goods prices were weak in November, Wednesday's CPI report showed. Prices for apparel, for instance, rose only 0.1% in November, while prices for toys fell 1.1%.

The unemployment rate hit a 50-year low in November, but this has yet to translate into a meaningful pickup in inflation.

Sarah House, senior economist at Wells Fargo, said that while low unemployment has helped underpin wage growth, especially for rank-and-file workers, companies are more reluctant to pass along labor costs in the form of price increases than in the past.

"It's not so much that the old rules of cost pressures stemming from wages are completely gone," Ms. House said. "They're just playing a smaller role than they have previously."

The Fed follows the consumer-price index for clues about the trajectory of inflation, though the central bank's inflation target of 2% is tied to a separate measure, the Commerce Department's price index for personal-consumption expenditures, which rose 1.3% year-over-year in October, the same rate as in September.

The consumer-price index tends to run a bit higher than the personal-consumption index, but both gauges generally follow the same path.

Harriet Torry contributed to this article.

Write to Sarah Chaney at sarah.chaney@wsj.com

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