Inflation Muted in November

The BLS reported that November's CPI was flat, with no change since October. Ratings agencies are starting to be more vocal about European-debt concerns. On Friday, the House and Senate both approved a $1 trillion omnibus spending bill.

December 19, 2011
By Dees Stribling, Contributing Editor

Image courtesy Flickr user

The Bureau of Labor Statistics reported on Friday that November’s Consumer Price Index was flat,, with no change since October. Some components were up marginally, such as a 0.1 percent rise in the price of food (though restaurant tabs were up more, 0.3 percent), while energy took a tumble, with prices down 1.6 percent overall, driven by a downward yo-yoing of gas prices by 2.4 percent. For the 12 months ending October, the CPI was up 3.4 percent.

Though down recently, the volatile and notorious energy component of the CPI was up 12.4 percent for the year. Gasoline is mostly to blame for the rise, since it’s up 19.7 percent for the last 12 months. The likes of home heating oil is way up year-over-year as well, also 19.7 percent. Homes that heat with gas, on the other hand, actually saw a 1.3 percent drop in the average price of natural gas year-over-year in October.

Take-out gas and food, for the curiously named “core” index of inflation, and prices were only up 0.1 percent in October. For the entire year, core inflation rose 2.2 percent, though if one puts food and gas back in the equation, then the CPI was up 3.4 percent. The core 2.2 percent rate isn’t particularly high by historical standards, but is still it’s the largest increase since 2008.

Rating Agencies Give Europe the Hairy Eyeball

Rating agencies are grumbling about European debt with increasing volume. On Friday, Moody’s Investors Service knocked Belgium’s debt rating down two notches to Aa3 from Aa1, with a negative outlook. The company cited generalized worries about the euro-zone, which are all too well known these days, but also specific Belgian issues.

For instance, Belgium only recently formed a government after much more than a year without one (then again, who noticed?). Not only that, the country’s caretaker government managed to take over the ailing Dexia Credit Local bank, a move that’s going to cost Belgium a pretty penny to resolve. “[There are] new risks and uncertainties for the Belgian government’s balance sheet stemming from the banking sector, particularly in connection with the contingent liabilities emanating from the run-off process of Dexia Credit Local,” Moody’s explained.

Though a downgrade from AAA is rumored for French, all Fitch did over the weekend was revise the outlook for various forms of French debt from stable to negative. “While France’s ‘AAA’ status is underpinned by its wealthy and diversified economy and financing flexibility, the Negative Outlook reflects heightened risk of contingent liabilities to the French state arising from the worsening economic and financial situation across the Eurozone,” the company said in a statement. Fitch also put Belgium, Cyrus, Italy, Ireland, Spain, and Slovenia on negative watch.

Congress Passes Omnibus, Not So Sure About Payroll Cut

On Friday, the House approved a $1 trillion or so omnibus spending bill by 296-121, and then the Senate approved it as well, so the government isn’t going to shut down in time for Christmas. On the other hand, Congress might not have many consensuses when it comes to extending the payroll tax cut and unemployment benefits. The Senate passed a bill on Friday, but the House might not go along with the Senate bill in its current form.

One of the main aspects of the Senate bill is the way in which it would pay for the cuts — namely, an increase in fees that Fannie Mae and Freddie Mac charge to insure home mortgages. Adding to the cost of mortgages might sound like to throwing a drowning man an anchor, but in fact the average increase is estimated to be fairly modest — around $17. All homebuyers need to do in that case is skip one trip to Starbucks.

Wall Street ended Friday on a mixed note. The Dow Jones Industrial Average lost 2.42 points, or a microscopic 0.02 percent, but the S&P 500 gained 0.32 percent and the Nasdaq was up 0.56 percent.