Consumer Prices in U.S. Probably Climbed at Slower Pace in July

By Shobhana Chandra

Aug. 14 (Bloomberg) -- Prices paid by U.S. consumers probably rose at a slower pace in July as fuel expenses peaked, economists said before a government report today.

The cost of living increased 0.4 percent, according to the median forecast of 78 economists in a Bloomberg News survey, after jumping 1.1 percent in June. Excluding food and energy, so called core prices likely rose 0.2 percent.

The slump in energy costs that began in July has continued this month, signaling weaker global economic growth is depressing prices. The report would bear out the Federal Reserve's forecast that inflation will cool, raising the odds that policy makers keep the benchmark interest rate unchanged for the rest of 2008.

``The sagging economy means high headline inflation is probably yesterday's story,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``Lower inflation, in turn, will likely keep the Fed on the sidelines all year.''

The Labor Department's consumer-price report is due at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey ranged from gains of 0.1 percent to 0.7 percent. Prices probably rose 5.1 percent from July 2007, the biggest 12-month jump since 1991.

Also at 8:30 a.m., Labor may report initial claims for unemployment benefits fell 20,000 to 435,000 last week, according to the survey median. The level of applications would still indicate the job market has weakened.

Detergent, Razors

Procter & Gamble Co. was among businesses that responded to the surge in oil earlier this year. The world's largest consumer-products company charged more for Cascade dishwashing detergent, Iams pet food and Gillette razors to offset some of the jump in packaging costs. McDonald's Corp., the world's largest restaurant company, raised prices as ingredient expenses surged.

``Beef and cheese are up, but we've been able to mitigate that cost,'' Chief Executive Officer James Skinner said in an interview in Beijing last week.

Commodity prices have been retreating since mid July. Crude oil futures dropped as low as $112 a barrel this week after topping $147 last month. Regular gasoline, which reached a record $4.11 a gallon on July 17, has fallen about 8 percent, according to AAA.

Policy makers at the Fed's Aug. 5 meeting signaled they're unlikely to change rates as they wait for slowing growth to cool inflation.

``Although downside risks to growth remain, the upside risks to inflation are also of significant concern,'' the Fed statement said. Still, ``the Committee expects inflation to moderate later this year and next year.''

Auto Sales

Higher gasoline bills and tighter credit reduced automobile purchases in July, causing retail sales to drop for the first time in five months, government figures showed yesterday.

Economists John Ryding and Conrad DeQuadros at RDQ Economics LLC in New York are among those not convinced inflation will continue to ebb. The recent decline is just ``temporary relief,'' they said.

``It would be a mistake to view this as a rolling over of the inflation problem and an endorsement of the Fed's policy to keep rates on hold,'' they wrote Aug. 11. By keeping rates low, policy makers will contribute to a pickup in prices later this year and next, they said.

A jump in the cost of imported goods may also give American companies leeway to charge more, economists said. Prices of products made overseas soared 22 percent in the year ended in July, the most since at least 1982, the Labor Department reported yesterday. The CPI is the government's broadest gauge of costs because it includes goods and services.

Bloomberg Survey

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                               CPI     Core      CPI  Initial
                                        CPI            Claims
                              MOM%     MOM%     YOY%   ,000's
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Date of Release              08/14    08/14    08/14    08/14
Observation Period            July     July     July   Aug. 9
----------------------------------------------------------------
Median                        0.4%     0.2%     5.1%      435
Average                       0.4%     0.2%     5.1%      435
High Forecast                 0.7%     0.3%     5.4%      465
Low Forecast                  0.1%     0.1%     4.8%      400
Number of Participants          78       78       39       41
Previous                      1.1%     0.3%     5.0%      455
----------------------------------------------------------------
4CAST Ltd.                    0.4%     0.2%     ---       455
Action Economics              0.4%     0.2%     5.2%      420
AIG Investments               0.4%     0.3%     ---      ---
Allianz Dresdner Economic     0.4%     0.2%     5.1%     ---
Argus Research Corp.          0.4%     0.2%     ---      ---
Banc of America Securitie     0.2%     0.2%     ---      ---
Bank of Tokyo- Mitsubishi     0.5%     0.2%     ---       400
Bantleon Bank AG              0.4%     0.2%     ---      ---
Barclays Capital              0.5%     0.2%     5.3%      450
BBVA                          0.7%     0.2%     ---      ---
BMO Capital Markets           0.4%     0.2%     5.2%      435
BNP Paribas                   0.6%     0.2%     5.2%      445
Briefing.com                  0.3%     0.2%     ---      ---
Calyon                        0.4%     0.2%     ---      ---
CFC Group                     ---      ---      5.1%      440
CIBC World Markets            0.5%     0.3%     5.3%     ---
Citi                          0.4%     0.2%     ---       445
ClearView Economics           0.3%     0.3%     5.3%     ---
Commerzbank AG                0.4%     0.2%     ---       450
Credit Suisse                 0.4%     0.2%     5.1%      465
Daiwa Securities America      0.4%     0.2%     ---      ---
Danske Bank                   0.4%     0.2%     5.1%     ---
DekaBank                      0.4%     0.2%     ---      ---
Desjardins Group              0.3%     0.2%     5.1%      450
Deutsche Bank Securities      0.4%     0.2%     ---       450
Deutsche Postbank AG          0.4%     0.2%     ---      ---
Dresdner Kleinwort            0.5%     0.2%     ---      ---
DZ Bank                       0.3%     0.2%     ---      ---
First Trust Advisors          0.6%     0.2%     ---       432
Fortis                        0.2%     0.3%     5.0%     ---
FTN Financial                 0.5%     0.2%     5.2%     ---
GCI Capital                   0.2%     0.2%     4.9%     ---
Global Insight Inc.           0.5%     0.2%     ---      ---
Goldman, Sachs & Co.          0.5%     0.2%     ---      ---
H&R Block Financial Advis     0.3%     0.2%     5.0%      415
Helaba                        0.3%     0.2%     5.0%     ---
Horizon Investments           0.3%     0.2%     ---      ---
HSBC Markets                  0.4%     0.2%     5.1%      420
IDEAglobal                    0.4%     0.2%     5.1%      440
Informa Global Markets        0.4%     0.2%     5.3%      440
ING Financial Markets         0.5%     0.2%     5.3%      420
Insight Economics             0.3%     0.2%     ---       430
Intesa-SanPaulo               0.4%     0.2%     5.1%     ---
J.P. Morgan Chase             0.5%     0.2%     ---       445
Janney Montgomery Scott L     0.6%     0.2%     5.4%     ---
JPMorgan Private Client       0.4%     0.2%     ---       435
Landesbank Berlin             0.2%     0.2%     4.9%      425
Landesbank BW                 0.4%     0.2%     ---      ---
Lehman Brothers               0.5%     0.2%     5.2%      440
Lloyds TSB                    0.4%     0.3%     4.9%      425
Merk Investments              0.5%     0.2%     5.2%      420
Merrill Lynch                 0.5%     0.2%     ---       440
MFC Global Investment Man     0.5%     0.2%     5.0%      425
Moody's Economy.com           0.4%     0.2%     5.1%      450
Morgan Keegan & Co.           0.5%     0.2%     ---      ---
Morgan Stanley & Co.          0.5%     0.2%     ---      ---
National Bank Financial       0.4%     0.2%     5.1%     ---
National City Corporation     0.3%     0.3%     ---      ---
Natixis                       0.4%     0.2%     5.3%     ---
Nomura Securities Intl.       0.4%     0.2%     ---      ---
Nord/LB                       0.4%     0.2%     5.2%      435
PNC Bank                      0.5%     0.2%     ---      ---
RBS Greenwich Capital         0.4%     0.2%     ---       445
Ried, Thunberg & Co.          0.4%     0.2%     5.1%      450
Schneider Trading Associa     0.4%     0.3%     5.2%      425
Scotia Capital                0.1%     0.2%     5.0%      415
Societe Generale              0.6%     0.2%     ---      ---
Standard Chartered            0.4%     0.2%     5.2%     ---
Stone & McCarthy Research     0.3%     0.3%     ---       430
TD Securities                 0.2%     0.2%     4.9%      420
Thomson Financial/IFR         0.3%     0.2%     4.8%      435
UBS Securities LLC            0.4%     0.1%     ---       450
Unicredit MIB                 0.4%     0.2%     ---       400
University of Maryland        0.4%     0.2%     ---      ---
Wachovia Corp.                0.4%     0.2%     5.1%     ---
Wells Fargo & Co.             0.4%     0.2%     ---       420
WestLB AG                     0.4%     0.2%     5.2%     ---
Westpac Banking Co.           0.3%     0.2%     ---       450
Wrightson Associates          0.4%     0.2%     ---       450
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net