In some good news for the inflation-conscious Federal Reserve, the Consumer Price Index fell by 0.3% in November. A decline had been expected, but the falloff in prices was a bit larger than the consensus view. Specifically, the forecast had been for a 0.2% decline. In the meantime, if we back out the volatile food and energy components, to get the so-called core rate of the CPI, we find that the index was up a scant 0.1% last month--hardly indicative of an inflation problem. It is the core rate that the Fed traditionally zeroes in on, although it does consider the overall headline number, as well. In October, the aggregate CPI had risen by 0.1%; the core CPI had gained 0.2%.

The principal reason for the drop in the headline inflation rate last month, was an outsized decline in gasoline prices. All told, energy prices tumbled by 4.1% last month; gasoline costs skidded by an even more dramatic 7.4%. The benign inflation report follows, by a day, a companion report from the Department of Labor, which showed an even steeper drop in prices, with the PPI tumbling by 0.8% last month. Meanwhile, this was the first monthly decline in the CPI since May. In between, we saw notable monthly increases of 0.6% in both August and September, on soaring energy prices at that time. Oil prices have since retreated some, falling in New York at one point this fall to about $80 a barrel. They have since recovered somewhat.

Less encouraging, however, is the fact that food prices continue to climb, rising by 0.2% in November. Although that was not a worrisome increase in and of itself, it was the sixth consecutive monthly increase in such costs. That is at least a mild concern.

More important, overall consumer price inflation was up just 1.8% in the past 12 months; the core CPI was higher by 1.9%. Those numbers are critical, as the Federal Reserve targets a 2.0% inflation rate as its benchmark. With inflation below that level, there is little likelihood the central bank will move away from its aggressive monetary easing policies, which were affirmed again this week, anytime soon.

Taken as a whole, and even with the continuing modest food price inflation trend, this was a favorable report. We would expect core price inflation to remain muted in 2013. Overall inflation remains harder to predict, with the often exaggerated fluctuations in energy prices, which are both economically and politically driven, the biggest factor in the headline number.