Inflation in check in key reading

Income, spending grew while key price measure shows no increase; solid spending could keep Fed on hold.

NEW YORK (CNNMoney.com) -- A key inflation gauge showed no rise in prices in November while Americans' incomes and spending both rose, but came in a bit lighter than expected.

Spending by consumers increased 0.5 percent, the Commerce Department said, up from a revised 0.3 percent rise in October. Economists surveyed by Briefing.com forecast a 0.6 percent rise.

Personal income grew 0.3 percent, the same as October's revised reading. Economists had forecast a 0.4 percent rise.

But the big news in the report was that two key inflation measures showed prices unchanged from October.

The so-called PCE deflator, which measures prices paid by individuals, and the core PCE stripping out food and energy were both flat last month. The closely watched core reading showed less inflation pressure than the 0.2 percent rise in October.

The core PCE was up 2.2 percent from a year earlier, down from a 2.4 percent year-over-year gain in October.

The core PCE is widely considered a favorite inflation gauge for the Federal Reserve, which is said to prefer year-over-year gains of 1 to 2 percent. So the report raised hopes that perhaps the Fed was moving closer to starting to cut short-term interest rates.

"It's not sufficient for the Fed to cut yet. But we're moving in the right direction," said Jeoff Hall, chief U.S. economist for Thomson Financial. "Inflation's not dead, but you knocked a couple of the fangs out of it."