BLBG: U.S. Consumer Prices Probably Dropped by a Record in November
By Bob Willis
Dec. 16 (Bloomberg) -- The cost of living in the U.S. probably fell in November by the most on record, as the value of oil plunged and retailers slashed prices to boost sales before the holidays, economists said ahead of a government report today.
Consumer prices probably dropped 1.3 percent last month, the most since record-keeping began in 1947, according to the median estimate in a Bloomberg News survey before today’s report. Excluding food and energy, so-called core prices may have risen 0.1 percent, the economists said.
Costs for oil and other raw materials plummeted last month as the credit crisis intensified, forcing consumers to slash spending and prompting U.S. automakers to ask for a federal rescue. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve later today to reduce its target rate to the lowest level ever.
“We’re now reversing out of the gains in inflation we saw earlier this year,” said Brian Bethune, chief financial economist at IHS Global Insight Inc. in Lexington, Massachusetts. “The Fed is dealing with a nasty, snarling, self-feeding recession and they can’t leave any ammunition unspent.”
The Labor Department’s consumer-price report is due at 8:30 a.m. today in Washington. Economists’ forecasts of the decline in the index ranged from 0.4 percent to 1.7 percent.
Falling crude oil costs are feeding through to retail prices. A gallon of regular gasoline at the pump plunged 32 percent last month to $2.11, according to AAA.
‘Bubble Has Burst’
“We had a bubble in oil -- the bubble has burst,” David Wyss, chief economist at Standard & Poor’s in New York, said in an interview with Bloomberg Television. “One thing recessions are really good at is bringing down inflation.”
Core prices, which exclude food and energy, rose 0.1 percent last month after a 0.1 percent drop the prior month, according to the survey median.
With inflation less of a concern, the Fed today is forecast to cut its overnight lending rate by half a percentage point to 0.5 percent, according to economists surveyed. The decision will be announced around 2:15 p.m. in Washington.
The Fed, struggling to shore up credit markets and arrest the economy’s slump, has slashed rates from 4.25 percent in December 2007, while using a host of unconventional methods to pump added cash into money markets.
12-Month Recession
The recession, already a year long, will continue to slow inflation. Consumer prices will probably rise just 0.7 percent in the 12 months ended in September 2009, the smallest year- over-year gain since 1962, according to economists surveyed last week by Bloomberg News.
Consumer spending will fall at a 4 percent annual pace in the current quarter, the most since 1980, and drop 1 percent for all of 2009, the economists forecast.
Weak spending, exacerbated by the worst credit crisis in seven decades, pushed car sales in November to their lowest level since 1982, underscoring calls for a government bailout for General Motors Corp. and Chrysler LLC.
“Sales are at depression levels,” Mike Jackson, chief executive officer at AutoNation Inc., the largest car dealer in the U.S., said in a Bloomberg Television interview from Fort Lauderdale, Florida, last week. “What’s needed is a restoration of credit” and a “stimulus package for the economy, including incentives for the auto industry and a bridge loan” for the automakers.
The housing recession that triggered the credit crisis shows no signs of abating. New-home starts in November dropped to a 736,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report today at 8:30 a.m.
“More needs to be done” to stop the cascade of foreclosures that is deepening the housing crisis, Fed Chairman Ben S. Bernanke said in a speech in Washington on Dec. 4. “Policy initiatives to reduce the number of preventable foreclosures should be high on the agenda.”
