BLBG: Consumer Prices in U.S. Little Changed as Fuel Costs Decrease
The cost of living in the U.S. was little changed in October, reflecting a drop in energy prices that has yet to filter through to other goods and services.
No change in the consumer-price index followed a 0.1 percent gain the prior month, a Labor Department report showed today in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.1 percent drop. Excluding volatile food and fuel, the so-called core measure rose 0.2 percent, the most in five months.
Rising costs for rents, airline fares, hotel rooms and furniture show the slowing in overseas growth that is helping restrain fuel prices and overall inflation isn’t rippling through the economy. That bears out forecasts by Federal Reserve policy makers that cooling price pressures will prove temporary as the U.S. economy strengthens.
“Pricing power is going to start to gradually improve for companies, but that’s going to be a slow process,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, said before the report. “The economy has improved a lot and taken up a lot of the slack,” he said.
Another report today showed fewer Americans filed for unemployment benefits last week as the need to retain staff keeps firings at the lowest levels in more than a decade.
Jobless claims fell by 2,000 to 291,000 in the week ended Nov. 15 from an upwardly revised 293,000 in the prior period, according to the Labor Department. It was the 10th straight week the number of claims has been lower than 300,000, which hasn’t happened since 2000.
Survey Results
Estimates for consumer prices in the Bloomberg survey ranged from a 0.3 percent drop to a 0.1 percent advance.
The increase in the core gauge was the biggest since May and followed a 0.1 percent rise in September. Economists had forecast a 0.1 percent increase, according to the survey median.
Overall consumer prices rose 1.7 percent in the 12 months ended in October, the same as in September. The core measure increased 1.8 percent from October 2013 after 1.7 percent in the prior 12-month period.
Energy costs declined 1.9 percent in October from a month earlier. Gas prices have been falling for almost five months, helping cushion consumer budgets. The average price of a gallon of regular unleaded gas was $2.86 as of Nov. 18, its lowest level since November 2010, according to AAA, the largest U.S. auto club.
The savings at the pump have businesses such as Springdale, Arizona-based Tyson Foods Inc. betting that Americans will feel better about spending.
Spending Power
“If past consumer behavior remains the same, and we believe it will, the recent drop in gas prices will put more money back into consumer wallet, which will result in increased meals away from home,” Chief Executive Officer Donald Smith said on a Nov. 17 earnings call.
The Fed’s 2-percent inflation goal is based on the personal consumption expenditures index, the Commerce Department’s price gauge that is tied to consumer spending. That measure climbed 1.4 percent in the 12 months through September and hasn’t reached the 2-percent level since April 2012.
The central bankers, who ended an unprecedented monthly asset purchase program in October, still are predicting inflation will move toward that goal as transitory energy price pressures wane, according to their statement at the conclusion of their two-day meeting last month.
Fed’s View
“Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year,” the officials wrote.
Nonetheless, minutes of the meeting showed many Fed policy makers thought the central bank should be on the lookout for signs of a decline in expectations for inflation.
“Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” according to a record of the Oct. 28-29 Federal Open Market Committee meeting released yesterday in Washington. “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”
Fed officials are still waiting for wage gains to accelerate after showing little growth since the end of the recession. Average hourly earnings advanced 2 percent in October from the same period in 2013.
The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, unexpectedly climbed in October on higher costs for services, data showed earlier this week. A separate report indicated the cost of imported goods fell 1.3 percent in October, the biggest month-over-month decline since June 2012.
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net
To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net
