Consumer Prices in U.S. Increased 0.3% in January

By Shobhana Chandra

Feb. 20 (Bloomberg) -- The cost of living in the U.S. rose in January for the first time in six months as gasoline stopped sliding and retailers tried to push through start-of-year increases even as sales slumped.

The consumer price index rose 0.3 percent, as forecast, Labor Department data showed today in Washington. Excluding food and fuel, the so-called core rate, prices advanced 0.2 percent, due to autos, clothing, and medical care. The CPI was unchanged on an annual basis -- the first time it hasn’t risen since 1955.

Prices may moderate in coming months as more companies follow Wal-Mart Stores Inc. and Macy’s Inc. in offering discounts as the economy sinks into what may be the worst recession in the postwar era. The Federal Reserve this week said some its officials were concerned about a rising risk of deflation, or a prolonged drop in prices that erodes profits and hurts lenders.

“We’re in the heart of the recession right now, and with demand falling rapidly, we can expect downward pressure on prices,” said Chris Rupkey, chief financial economist in New York at Bank of Tokyo-Mitsubishi UFJ Ltd., which accurately forecast the CPI. “Everything is heading in the same direction, which is down. Sales are down, profits are down, prices are coming down.”

Treasuries, which had risen earlier in the day, remained higher after the report. Yields on benchmark 10-year notes dipped to 2.74 percent at 9:40 a.m. in New York from 2.86 percent late yesterday. Stocks fell, with the Standard & Poor’s 500 Index sliding 1.8 percent to 765.04.

Energy Costs

The projected gain in the CPI was based on the median forecast of 71 economists in a Bloomberg News survey. Costs excluding food and energy were projected to rise 0.1 percent.

Consumer prices were unchanged over the last 12 months. The core rate climbed 1.7 percent from January 2008, the smallest gain since March 2004.

Energy expenses rose 1.7 percent, led by a 6 percent increase in gasoline prices. The fuel’s price fell 50 percent in the last three months of 2008.

The CPI is the broadest of the three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food prices, which account for about a fifth of the CPI, increased 0.1 percent.

Car Prices

New vehicle prices climbed 0.3 percent, the most in three years, and clothing costs also rose 0.3 percent. The cost of medical care increased 0.4 percent.

Rents, which make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices climbed 0.3 percent.

Plummeting sales at General Motors Corp., Ford Motor Co. and Chrysler LLC may keep vehicle prices depressed.

Houston-based Group 1 Automotive Inc., the owner of 100 U.S. and U.K. car dealerships, said yesterday it posted a fourth- quarter net loss, will cut 1,450 jobs and suspended its dividend. Tight credit continues to make it difficult for some consumers to buy vehicles, Chief Executive Officer Earl Hesterberg said in an interview.

“All the brands are pretty much created equally,” he said. “They’re all suffering.”

Retailer Discounts

Macy’s, Kohl’s Corp. and AnnTaylor Stores Corp. last month offered discounts of as much as 70 percent, while low-priced food and drugs helped lift purchases at Wal-Mart, the world’s largest retailer.

Starbucks Corp., the world’s largest chain of coffee shops, is trying other ways to lure cash-strapped customers. It began selling $3.95 breakfast meals and will introduce Via instant coffee, at $2.95 for a packet of three individual servings.

Economists caution that disinflation could lead to outright deflation, which erodes profits and makes debts harder to repay. Still, others worry that in the longer term, the unprecedented fiscal stimulus and the Fed’s policy of buying more assets and pumping money into the financial system will reignite inflation.

Fed officials introduced long-term inflation estimates, with most favoring a 2 percent rate, according to minutes of their January meeting released this week.

The step should “help to better stabilize the public’s inflation expectations, thus contributing to keeping actual inflation from rising too high or falling too low,” Fed Chairman Ben S. Bernanke said in a Feb. 18 speech in Washington. “We expect inflation to be quite low for some time.”

Other labor reports this week showed the cost of goods imported into the U.S. fell in January for a sixth consecutive month and wholesale prices rose 0.8 percent in January, more than anticipated, as fuel prices climbed.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net