By Timothy R. Homan Oct. 16 (Bloomberg) -- The cost of living in the U.S. was unchanged in September, restrained by plunging fuel costs and decreases in automobile prices and airline fares that signal the slowing economy is starting to cool inflation. No change in prices, less than the 0.1 percent increase anticipated by the median estimate of economists surveyed, followed a 0.1 percent drop the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast. Less inflation gives 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. ``Inflation has come down a lot and will keep falling,'' Larry Kantor, head of research at Barclays Capital Inc. in New York, said yesterday in a Bloomberg Television interview. The easing of price pressures will ``allow for further interest rate cuts'' by the Federal Reserve, he said. Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 75 economists in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a gain of 0.2 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed. Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month. Fewer Claims Separately, the Labor Department said initial jobless claims fell last week as job losses related to the Gulf Coast hurricanes subsided, while total benefit rolls rose to the highest level in five years. First-time applications declined by 16,000 to 461,000 in the week that ended Oct. 11. 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. Energy expenses dropped 1.9 percent, led by the biggest decrease in the cost of natural gas on record. Gasoline prices fell 0.6 percent. Oil prices have kept coming down this month. Crude oil futures on the New York Mercantile Exchange dipped below $75 a barrel yesterday after averaging $103.76 in September. Other Measures 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. Food prices, which account for about a fifth of the CPI, rose 0.6 percent for a second month. New-vehicle prices dropped 0.7 percent, the most since August 2005, and air fares fell 1.7 percent, the biggest decline since November 2006. Companies are offering discounts to revive slumping retail sales, which the Commerce Department said yesterday dropped in September by the most in three years. Mattel, 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. Wal-Mart Stores Inc. said this month it will cut prices ahead of the holiday season, offering 10 items for $10 each. Hotel companies are struggling as consumers pull back on spending. Marriott International Inc., the biggest U.S. hotel chain, said in a statement that a measure of rates and occupancy will ``at best'' fall 3 percent in North America in 2009. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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