Consumer Prices in U.S. Stagnate as Gas Drops

By Bob Willis - Dec 16, 2011 10:06 PM GMT+0700

The cost of living in the U.S. was little changed in November as gasoline prices dropped and food expenses cooled, supporting the Federal Reserve’s view that inflation will remain in check.

The stable reading for the consumer-price index followed a 0.1 percent decline in October, a report from the Labor Department showed today in Washington. So-called core prices that exclude food and energy rose 0.2 percent, more than forecast, reflecting higher medical care and clothing costs.

Companies like Target Corp. and J.C. Penney Co. are stepping up promotions during the holiday season to lure customers facing 8.6 percent unemployment and stagnant wages, signaling any price increases will be limited. More stable inflation gives Fed policy makers leeway to take additional steps to boost growth should the world’s largest economy falter.

“Retailers will be inclined to do more discounting,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, who projected prices would be unchanged. “Inflation will crest around here. This will give the Fed more comfort in terms of implementing further monetary policy.”

Stocks rose on optimism the European Union will meet a Dec. 19 deadline for funding a crisis-fighting package. The Standard & Poor’s 500 Index climbed 1 percent to 1,228.25 at 10:05 a.m. in New York.

Euro-Area Exports

Euro-area exports fell 1.9 percent in October, led by declines in Germany and Spain, data today showed, as the region’s economy slid toward a recession. European car sales fell in November by the most in five months, the Brussels-based European Automobile Manufacturers Association said. Ireland’s economy shrank 1.9 percent in the third quarter, the most in more than two years, according to separate figures.

With the fallout from Europe’s debt crisis threatening growth and inflation cooling, the Reserve Bank of India left the repurchase rate at 8.5 percent. The decision was projected by all 14 analysts in a Bloomberg News survey.

The median forecast of 82 economists surveyed by Bloomberg projected a 0.1 percent increase in consumer prices. Estimates ranged from a decline of 0.1 percent to a 0.4 percent gain. Economists projected a 0.1 percent gain in core prices, according to the survey median.

Overall consumer prices increased 3.4 percent in the 12 months ended November, the smallest year-over-year increase since April. The core CPI climbed 2.2 percent from November 2010, the most since October 2008.

Fed’s Gauge

The Fed’s preferred price gauge, the Commerce Department’s measure that excludes food and fuel and is tied to consumer spending, rose 0.1 percent in October after no change the prior month. It was up 1.7 percent in the year ended in October, at the lower end of Fed policy makers’ long-run projection of 1.7 percent to 2 percent.

“Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable,” Fed policy makers said in a Dec. 13 statement after their most recent monetary policy meeting.

Today’s report showed energy costs in November decreased 1.6 percent from a month earlier, reflecting a 2.4 percent drop in gasoline prices. Energy costs were up 12 percent from November 2010.

The average price of a gallon of regular gasoline at the pump fell to $3.38 last month from $3.43 in October, according to data from AAA, the country’s biggest auto group.

Fuel Costs

Fuel costs may keep declining as the European debt crisis threatens to slow global growth. The average gasoline price dropped to $3.26 a gallon on Dec. 14, the lowest since February.

“Weakness in energy will become more obvious in coming months,” said Eric Green, chief market economist at TD Securities Inc. in New York. “The story will be core inflation holding around these levels while headline moves lower, and that frees up the Fed to become more proactive as necessary.”

The cost of food in November climbed 0.1 percent, restrained by the first decrease in a year in the food-at-home category. Clothing prices advanced 0.6 percent, the seventh gain in the past eight months, today’s report showed. Expenses for medical care increased 0.4 percent after a 0.5 percent gain the prior month.

Retailers are relying on a range of marketing ploys to keep consumers spending through Christmas. Cyber Monday came twice this year at J.C. Penney Co. and Sears Holdings Corp. -- once on the day after Thanksgiving weekend and again a week later.

Target Corp. (TGT) began a three-day “Almost Last Minute Sale” on Dec. 8 with markdowns on such items as Stanley Black & Decker Inc. coffee makers and gift card giveaways. A week earlier, the discount chain held the “Big Toy Event” on Dec. 1 offering half off a second item.

Rents Cool

Today’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.1 percent after a 0.2 percent gain in October.

Paychecks are failing to keep up with even limited inflation. Hourly earnings adjusted for inflation fell 0.1 percent in November, and were down 1.5 percent over the past 12 months.

A Labor Department report yesterday showed prices paid to wholesalers excluding food and fuel rose 0.1 percent in November, less than forecast, while all producer prices rose 0.3 percent, paced by a gain in food expenses.

Import prices in the U.S., reported Dec. 14, rose 0.7 percent.

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

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net