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Consumer prices in US stagnate as gas drops

Bloomberg  |  Washington 

The cost of living in the US 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 per cent decline in October, a report from the Labor Department showed on Saturday in Washington. So-called core prices that exclude food and energy rose 0.2 per cent, more than forecast, reflecting higher medical care and clothing costs.

Companies like Target Corp. and JC Penney Co are stepping up promotions during the holiday season to lure customers facing 8.6 per cent 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 US 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 as gains among commodity producers helped overcome concern over the European debt crisis. The Standard & Poor’s 500 Index climbed 0.3 per cent to 1,219.66 at the 4 p.m. close in New York.

Euro-Area Exports
Euro-area exports fell 1.9 per cent in October, led by declines in Germany and Spain, data on Saturday 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 per cent 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 per cent. The decision was projected by all 14 analysts in a Bloomberg survey.

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

Overall consumer prices increased 3.4 per cent in the 12 months ended November, the smallest year-over-year increase since April. The core CPI climbed 2.2 per cent 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 per cent in October after no change the prior month. It was up 1.7 per cent in the year ended in October, at the lower end of Fed policy makers’ long-run projection of 1.7 per cent to two per cent.

“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.

On Saturday’s report showed energy costs in November decreased 1.6 per cent from a month earlier, reflecting a 2.4 per cent drop in gasoline prices. Energy costs were up 12 per cent 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 per cent, restrained by the first decrease in a year in the food-at-home category. Clothing prices advanced 0.6 per cent, the seventh gain in the past eight months, on Saturday’s report showed. Expenses for medical care increased 0.4 per cent after a 0.5 per cent 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
On Saturday’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.1 per cent after a 0.2 per cent gain in October. Paychecks are failing to keep up with even limited inflation. Hourly earnings adjusted for inflation fell 0.1 per cent in November, and were down 1.5 per cent over the past 12 months.

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

First Published: Sun, December 18 2011. 00:34 IST