U.S. Cost of Living Probably Cooled as Fuel Prices, Rents Eased
March 18, 2010, 12:16 AM EDTBy Carlos Torres
March 18 (Bloomberg) -- The cost of living in the U.S. probably rose at a slower pace in February, restrained by lower gasoline prices and a stagnant home-rental market, economists said before a government report today.
Retailers such as Wal-Mart Stores Inc. continue to focus on cutting prices to bolster sales as customers face almost 10 percent unemployment and foreclosures mount. The lack of inflation is one reason Federal Reserve policy makers have pledged to keep the benchmark interest rate near zero in coming months to sustain economic growth.
“Price measures are tame,” said Jonathan Basile, an economist at Credit Suisse in New York. “That mirrors the language the Fed used. In an environment where companies are so concerned about demand, it’s difficult to fully pass along higher input costs.”
The Labor Department’s consumer-price report is due at 8:30 a.m. in Washington. Survey forecasts ranged from a decrease of 0.2 percent to a 0.3 percent gain.
In the 12 months ended in February, prices probably climbed 2.3 percent, down from a 2.6 percent year-over-year gain the prior month, according to the survey median.
Excluding Food, Fuel
Excluding food and energy costs, the so-called core index may have risen 0.1 percent, the survey showed, after a 0.1 percent drop in January that marked the first decrease since 1982. The projected 1.4 percent increase over the past 12 months would be the smallest in six months.
Fed policy makers this week retained a pledge to keep the main interest rate near zero for an “extended period,” and said “inflation is likely to be subdued for some time.” Low levels of capacity use, high unemployment, tame inflation and stable expectations on the likely trajectory of prices were among the “economic conditions” the central bankers cited for the lack of urgency to boost the target on overnight loans between banks.
The Fed’s long-term forecast for its preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.7 percent to 2 percent. That gauge, which is typically lower than the CPI, was up 1.4 percent in the 12 months through January.
Stocks Climb
Stocks have rallied since the Fed’s announcement on expectations borrowing costs will remain low. The Standard & Poor’s 500 Index closed yesterday at a 17-month high of 1,166.2.
Also at 8:30 a.m. today, another report from the Labor Department may show initial claims for unemployment insurance benefits dropped to 455,000 last week, the fewest in two months, from 462,000 the prior week, according to the survey median. The decline points to a stabilization in the labor market as the economy expands.
Manufacturing is at the forefront of the recovery. Factories in the region covering eastern Pennsylvania, southern New Jersey and Delaware probably grew at a faster pace this month, data due at 10 a.m. from the Philadelphia Fed may show. The bank’s manufacturing index probably rose to 18 this month from 17.6 in February, according to the median estimate of economists surveyed. Readings greater than zero signal growth.
Outlook Improving
Finally, a report at 10 a.m. from the Conference Board, a New York research group, is expected to show the expansion will be sustained. The index of leading economic indicators, a measure of the outlook for the next three to six months, probably rose 0.1 percent in February, the 11th consecutive gain. It would mark the longest stretch of gains since 2003-04.
Consumer prices last month were probably restrained by a drop in fuel costs. The price of a gallon of regular gasoline at the pump averaged $2.65 last month, down from $2.71 in January, according to data from AAA, the nation’s largest motoring group. The fuel’s price has rebounded this month, averaging $2.76 in the first 16 days of March.
Other limits on the cost of living are likely to be longer- lasting. Rents, which account for almost 40 percent of core consumer prices, have been dropping as the rising tide of foreclosures pushes more houses into the rental market, causing vacancy rates to jump to a record in the second half of 2009.
Rental Value
A measure tracking the rental value of owner-occupied housing was down 0.2 percent in the six months to January, the biggest drop during such a time span since records began in 1982.
Wal-Mart, the world’s largest retailer, is among companies using prices to drum up demand. The Bentonville, Arkansas-based company said it is increasing marketing efforts to highlight its price rollbacks.
“Our focus has been on driving prices down,” Bill Simon, chief operating officer at Wal-Mart, said at a consumer conference in New York on March 10. “We see the higher the rollbacks go in our store, the better comp sales are. So, we’re pressing that forward.”
--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Brendan Murray
To contact the reporter on this story: Carlos Torres in Washington at ctorres2@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
