U.S. Economy: Consumer Prices Rise More Than Forecast (Shobhana Chandra)

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By Shobhana Chandra

Dec. 14 (Bloomberg) -- U.S. consumer prices rose the most in more than two years last month on record energy costs, reinforcing the Federal Reserve's concern that inflation will erode confidence in the economy.

The consumer price index increased 0.8 percent in November, up from 0.3 percent the previous month, the Labor Department said today in Washington. Prices excluding food and energy climbed 0.3 percent, also more than economists anticipated. Another report from the Fed showed industrial production expanded, after declining in October.

The inflation figures may explain the Fed's decision to lower its benchmark interest rate by a quarter point this week, disappointing some investors who said the cut wasn't deep enough to combat the economic slowdown. Some traders trimmed bets on a reduction in January, though most still see another cut in borrowing costs.

``There is no question inflation is going to remain a concern for policy makers,'' said David Resler, chief economist at Nomura Securities International Inc. in New York, who correctly forecast the increase in so-called core prices. ``This certainly will give some policy makers pause about the advisability and desirability of further rate cuts.''

Economists surveyed by Bloomberg News forecast consumer prices would rise 0.6 percent, according to the median of 80 estimates. Predictions ranged from gains of 0.4 percent to 1 percent. Prices excluding food and energy were forecast to rise 0.2 percent.