Lower price reports indicated inflation in check

Further good news for possible rate decreases. Both the CPI (Consumer Price Index) and the PPI (Producer Price Index) showed declines in October, easing fears of inflationary pressure that could lead to higher rates.

The so called core CPI, which strips out volatile food and energy prices, edged up 0.1 percent, following a 0.2 percent gain posted in September. Economists had forecast another 0.2 percent increase in core prices.

Even some economists who are "inflation hawks" who have been voicing greater concerns about price pressures admitted Thursday's report was a positive sign on inflation.

"This is a very encouraging report. But it's only one report," said Rich Yamarone, director of economic research at Argus Research.

It was the smallest monthly rise in core CPI since February, and it put the core CPI up 2.7 percent on a year-over-year basis. That's down from the 2.9 percent year-over-year gain in the September report, which had been the biggest 12-month increase in more than a decade.

That annual change is closely watched by those trying to determine what the Federal Reserve will do to interest rates in order to battle inflation. While 2.7 percent is a bit above what economists say is the comfort zone for the Fed, there had been a fear that an upside surprise in the core CPI could have taken the year-over-year change to 3.0 or more, which could have brought talk of a new round of rate hikes to battle inflation.

Still, Fed watchers report that they do not expect any decrease in the Fed rate until 2008, as the Fed is always concerned about keeping inflation in check. Look for interest rates to remain much the same, with a chance that they will drift somewhat lower in 2007 as long as inflation stays in check.