Bloomberg News

Cost of Living in the U.S. Probably Moderated in September

October 19, 2011

Oct. 19 (Bloomberg) -- The cost of living in the U.S. probably eased September, a sign inflation may moderate as Federal Reserve officials have forecast, economists said before a report today.

Consumer prices climbed 0.3 percent, the smallest gain in three months, according to the median forecast of 78 economists surveyed by Bloomberg News. Separate data may show homebuilding rebounded in September from the slowest pace since May.

Companies like clothing retailer Gap Inc. and supermarket chain Safeway Inc. have said they are limited in how much they can raise prices to recoup raw-materials costs as weak job and income gains squeeze consumers. With inflation less of a concern, Fed policy makers would have the flexibility to take additional steps should the world’s largest economy stumble.

“Inflation is around where the Fed would like it to be,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York. “On the growth side, the recovery has been disappointing, and they’re worried it could falter.”

The Labor Department will issue the consumer price index at 8:30 a.m. today in Washington. Economists’ estimates ranged from little changed to gains of 0.4 percent.

The so-called core index, which excludes volatile food and fuel costs, increased 0.2 percent for a third consecutive month, according to the survey median.

Also at 8:30 a.m., a Commerce Department report may show housing starts climbed 3.3 percent to a 590,000 annual pace, according to the Bloomberg survey median. Estimates ranged from 560,000 to 643,000.

Permits Forecast

Building permits, a sign of future construction, fell 2.4 percent last month from August, to a 610,000 pace, the data may also show.

Most Fed officials at the Sept. 20-21 meeting anticipated core and headline inflation was “likely to settle, over coming quarters, at or below the levels they see as most consistent with their dual mandate,” according to minutes released on Oct. 12.

“With stable inflation expectations, significant slack in labor and product markets, slow wage growth, and little evidence of pricing power among firms, inflation was likely to decline moderately over time,” the minutes said. Participants also saw “considerable uncertainty surrounding the outlook for a gradual pickup in economic growth.”

Investor concern about a slowdown in economies from Europe and China to the U.S. has damped energy prices. Crude oil for November delivery closed yesterday at $88.36 a barrel at the New York Mercantile Exchange, down 22 percent from this year’s high of $113.93 reached on April 29.

Cheaper Fuel

The cost of a gallon of regular gasoline at the pump averaged $3.59 in September, down from $3.62 the prior month, according to data from AAA, the nation’s largest auto group. Fuel has fallen further since then, reaching $3.47 on Oct. 17.

The outlook on inflation is in sync with retailers’ moves. A jump in cotton expenses hurt Gap’s Old Navy stores that sell more clothing made of the material, yet it “chose not to raise prices commensurate with cost given the impact of the tough economy on our customers,” Chief Financial Officer Sabrina Simmons said on a conference call with analysts on Oct. 13.

Steven Burd, chairman and chief executive officer of Safeway, said inflation was “predominantly in perishable categories” and fuel, while there were “a couple of categories that actually had deflation.” Shoppers at the Pleasanton, California-based company remain “very conscious” of the price tag, he said.

The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. Almost 60 percent of the index covers prices consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

A report yesterday showed producer prices rose 0.8 percent in September, while the import-price index, released last week, climbed 0.3 percent. The pipeline pressures, reflecting a surge in raw materials expenses earlier this year, may wane as slower global growth subdues demand.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Christopher Wellisz

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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