U.S. consumer prices were unchanged in November amid a sharp drop in gasoline prices, lending support to expectations that the Federal Reserve will ease monetary tightening next year.

November’s flat Consumer Price Index reading was the weakest in eight months and followed a 0.3% percent increase in October. In the 12 months through November, the CPI rose 2.2%, the smallest gain since February, after advancing 2.5% in October.

But the core CPI , stripping out the volatile food and energy categories, rose 0.2% last month, matching matching October’s gain and lifting the year-on-year increase to 2.2% from 2.1% in October.

The CPI report comes ahead of a meeting next week where the Fed is expected to hike interest rates for the fourth time this year. But with inflation still relatively benign, economists predict the pace of hikes will ease next year.

“The inflation picture is still fairly tame, certainly not heating up enough to push the Fed to a more aggressive stance,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters. “After next week’s expected hike, look for the Fed to raise rates only a couple of times in 2019.”

The Fed’s preferred inflation measure, the core PCE price index excluding food and energy, hit its 2% target in March for the first time since April 2012. But in October, the metric increased 1.8% year on year, the smallest gain since February, after rising 1.9% the prior month.

Minutes of the Fed’s November policy meeting showed nearly all officials agreed another rate hike was “likely to be warranted fairly soon,” but also opened debate on when to pause further monetary policy tightening.

“The recent softening in core [PCE] inflation … does suggest that the Fed won’t hesitate to move to the sidelines if activity growth begins to slow more sharply,” said Andrew Hunter, an economist at Capital Economics in London.

Gas prices fell 4.2% last month after surging 3.0% in October, offsetting any increase in overall prices. “Lower energy prices are likely to aid households through the winter months,” MarketWatch said.

Photo: Getty Images

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