By Timothy R. Homan
Oct. 16 (Bloomberg) -- Plummeting fuel costs probably restrained prices paid by U.S. consumers in September, signaling a slowing economy diminished the threat of inflation, economists said before a report today.
The cost of living increased 0.1 percent after a 0.1 percent drop in August, according to the median forecast of 75 economists in a Bloomberg News survey. Other reports today are projected to show manufacturing contracted for a second month, and job losses remained elevated.
Less inflation will give Federal Reserve Chairman Ben S. Bernanke scope to lower interest rates further as policy makers attempt to unfreeze credit markets. Some companies are cutting prices to entice cash-strapped consumers who are limiting purchases to essential items such as food and fuel.
``The commodities pullback and rising unemployment point to a complete reversal in this year's upswing in inflation,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
The Labor Department's price report is due at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey ranged from a decline of 0.3 percent to a 0.2 percent gain. Excluding food and energy, so-called core prices likely rose 0.2 percent, matching the previous month's gain, the survey showed.
Prices probably rose 5 percent from September 2007, down from the previous month's 5.4 percent increase. Excluding food and energy, costs probably rose 2.5 percent in the last 12 months, the same as the year ended in August.
Less Output
A report today from the Fed will probably show industrial production fell 0.8 percent in September following the previous month's 1.1 percent decline, according to the survey median. The back-to-back drop in output at factories, mines and utilities would be the biggest since 1990.
A report from the Labor Department may show the job market remains weak. The number of Americans filing first-time applications for unemployment benefits last week fell 8,000 to 470,000, according to the survey median. Weekly claims averaged 321,000 last year.
The effects of the deepening credit crisis on the economy will cause the unemployment rate to keep rising for another year, reaching 7.3 percent by the last three months of 2009, said Maury Harris, chief U.S. economist at UBS Securities LLC in New York. The rate was 6.1 percent last month, matching a five-year high.
``This is something that is impossible to turn around right away,'' Harris said in an interview on Bloomberg Radio yesterday.
`Price Stability'
Stable price expectations, a drop in the cost of imported goods, and ``recent declines in prices of oil and other commodities as well as the likelihood that economic activity will fall short of potential for a time, should lead to rates of inflation more consistent with price stability,'' Bernanke said yesterday.
Bernanke also said government efforts to calm financial markets and stem the credit crisis probably won't result in an immediate economic rebound.
As part of a concerted effort with other central banks, the Fed cut the target on its benchmark rate by a half point last week to 1.5 percent and Bernanke signaled policy makers are ready to lower borrowing costs again should the markets not stabilize.
Consumer prices last month were probably tempered by lower fuel costs. Crude oil futures on the New York Mercantile Exchange averaged $103.76 in September, down from $116.69 a barrel the previous month. The price has dropped even more since then, dipping below $75 yesterday.
Goods, Services
The consumer-price index is the last of three monthly price gauges from the Labor Department. The CPI is the government's broadest gauge of costs because it includes goods and services.
Prices paid to U.S. producers fell for a second month in September, the first back-to-back drop in two years, the government said yesterday. Import costs last month decreased by the most since April 2003, Labor figures showed last week.
Consumer spending, comprising more than two-thirds of the U.S. economy, is faltering even as fuel costs retreat. Retail sales dropped in September for a third consecutive month, the first time that's happened since comparable records began in 1992, Commerce Department figures showed yesterday.
Mattel Inc., the world's largest toymaker, said this month that most of its holiday toys will cost less than $20 to help lure shoppers who are cutting back on spending.
``Whenever there's a tough economic situation, obviously it is a concern for all industries,'' Mattel Brands President Neil Friedman said in an Oct. 13 interview on Bloomberg Radio. ``Toy budgets will definitely be reduced.''
Bloomberg Survey
===============================================================
CPI Core Initial Ind.
CPI Claims Prod.
MOM% MOM% ,000's MOM%
===============================================================
Date of Release 10/16 10/16 10/16 10/16
Observation Period Sept. Sept. Oct. 4 Sept.
---------------------------------------------------------------
Median 0.1% 0.2% 470 -0.8%
Average 0.1% 0.2% 471 -0.9%
High Forecast 0.2% 0.3% 500 0.1%
Low Forecast -0.3% 0.1% 445 -2.8%
Number of Participants 75 74 39 73
Previous -0.1% 0.2% 478 -1.1%
---------------------------------------------------------------
4CAST Ltd. 0.2% 0.2% 475 -0.8%
Action Economics 0.0% 0.2% 465 -0.9%
Aletti Gestielle SGR 0.1% 0.1% 475 -1.0%
Allianz Dresdner Economic 0.1% 0.2% --- -0.9%
Argus Research Corp. -0.2% 0.2% --- -0.2%
Banc of America Securitie 0.0% 0.2% --- -0.5%
Bank of Tokyo- Mitsubishi 0.2% 0.3% 465 -0.5%
Bantleon Bank AG 0.1% 0.2% --- -1.0%
Barclays Capital 0.2% 0.2% 465 -1.8%
BMO Capital Markets 0.1% 0.2% 485 -0.8%
BNP Paribas 0.1% 0.2% 465 -0.9%
Briefing.com 0.0% 0.1% 475 -0.8%
Calyon 0.1% 0.2% --- -0.9%
CFC Group --- --- 495 -0.8%
CIBC World Markets 0.2% 0.2% --- -1.5%
Citi 0.1% 0.2% 450 -0.5%
ClearView Economics -0.2% 0.1% --- -0.6%
Commerzbank AG 0.1% 0.2% 500 -1.0%
Credit Suisse 0.2% 0.2% 470 -0.8%
Daiwa Securities America 0.1% 0.2% --- -0.5%
Danske Bank 0.0% 0.2% --- -0.7%
DekaBank 0.2% 0.2% --- -1.0%
Desjardins Group 0.2% 0.1% 475 -0.9%
Deutsche Bank Securities 0.1% 0.2% 470 -1.5%
Deutsche Postbank AG 0.0% 0.2% --- -0.8%
Dresdner Kleinwort 0.1% 0.1% --- -1.3%
DZ Bank 0.0% 0.2% --- -0.7%
First Trust Advisors 0.0% 0.2% 478 -0.8%
Fortis -0.1% 0.3% --- -0.5%
FTN Financial -0.1% 0.2% --- ---
Global Insight Inc. 0.2% 0.2% --- -2.8%
Goldman, Sachs & Co. 0.1% 0.2% --- -1.5%
H&R Block Financial Advis 0.1% 0.2% 460 -1.0%
Helaba 0.0% 0.2% --- -1.0%
High Frequency Economics 0.2% 0.2% 460 -0.4%
Horizon Investments 0.1% 0.2% --- -0.5%
HSBC Markets 0.0% 0.2% 460 -0.6%
IDEAglobal 0.0% 0.2% 480 ---
ING Financial Markets -0.1% --- --- -0.9%
Insight Economics -0.1% 0.2% 465 -1.0%
Intesa-SanPaulo 0.1% 0.2% --- -0.7%
J.P. Morgan Chase 0.2% 0.2% 465 -1.7%
Janney Montgomery Scott L 0.1% 0.3% --- -1.2%
Landesbank Berlin -0.1% 0.3% 480 -0.5%
Landesbank BW 0.1% 0.2% --- -0.7%
Lloyds TSB 0.2% 0.2% 445 0.1%
Maria Fiorini Ramirez Inc 0.1% 0.2% 465 -1.5%
Merk Investments 0.1% 0.2% 470 -1.4%
Merrill Lynch 0.1% 0.2% --- -1.9%
MFC Global Investment Man 0.0% 0.1% 480 -1.0%
Moody's Economy.com -0.1% 0.2% 475 -0.5%
Morgan Stanley & Co. 0.2% 0.2% --- -0.8%
National City Corporation 0.2% 0.2% --- -0.5%
Natixis 0.2% 0.2% --- -1.3%
Newedge 0.1% 0.2% --- -0.7%
Nomura Securities Intl. 0.2% 0.2% --- -0.6%
Nord/LB -0.2% 0.2% 470 -0.5%
Okasan Securities 0.1% 0.2% --- ---
PNC Bank 0.2% 0.2% --- -0.6%
RBS Greenwich Capital 0.1% 0.2% --- -0.7%
Ried, Thunberg & Co. 0.2% 0.2% 460 -2.0%
Schneider Trading Associa 0.0% 0.3% 465 -1.6%
Scotia Capital -0.2% 0.1% 470 -1.5%
Societe Generale 0.0% 0.2% --- -0.3%
Stone & McCarthy Research -0.3% 0.1% 470 -1.6%
TD Securities 0.1% 0.2% 480 -1.0%
Thomson Financial/IFR 0.0% 0.2% 480 -0.8%
Tullett Prebon 0.1% 0.2% 473 -0.8%
UBS Securities LLC 0.2% 0.2% 475 -1.9%
Unicredit MIB -0.2% 0.2% --- 0.0%
University of Maryland 0.2% 0.2% --- -0.7%
Wachovia Corp. 0.1% 0.2% --- -0.2%
Wells Fargo & Co. 0.0% 0.2% 465 -0.9%
WestLB AG -0.1% 0.2% --- -0.8%
Westpac Banking Co. -0.1% 0.2% 470 -0.8%
Wrightson Associates 0.2% 0.2% 460 -2.0%
===============================================================
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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