(Updates with economist comment in fourth paragraph.)
Oct. 19 (Bloomberg) -- The cost of living in the U.S. rose in September at the slowest pace in three months, signaling inflation may moderate as Federal Reserve officials have predicted.
The consumer-price index climbed 0.3 percent from the prior month, in line with the median projection of economists surveyed by Bloomberg News, a report from the Labor Department showed today in Washington. Excluding volatile food and fuel costs, the so-called core rose 0.1 percent, less than forecast and the smallest gain since March.
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 playing out according to the Fed’s script,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The economy is sluggish and businesses are very hesitant to pass on higher input costs to consumers. Consumers are very price sensitive right now.
The biggest drop in clothing prices since 1998, lower costs for used cars and trucks and the smallest increase in rents in four months led to the moderation in core prices last month.
Builders began work on more homes than forecast in September on rising demand for apartments and condominiums as the housing slump prompts more Americans to become renters, another report showed today. Housing starts jumped 15 percent to a 658,000 annual rate, up the most since April 2010, according to data from the Commerce Department.
Nonetheless, building permits, a proxy for future construction, declined to a five-month low, indicating foreclosures that are adding to the supply of unsold homes and depressing property values may continue to hold back developers.
Stock-index futures trimmed earlier losses after the reports. The contract on the Standard & poor’s 500 Index expiring in December fell 0.1 percent to 1,221.8 at 8:51 a.m. in New York. Treasury securities declined, sending the yield on the benchmark 10-year note up to 2.20 percent from 2.18 percent late yesterday.
Today’s consumer-price report also suggested the estimated monthly payment for retired workers receiving Social Security benefits will rise 3.6 percent in 2012.
The forecast gain in consumer prices was based on the median of 79 economists in a Bloomberg survey. Estimates ranged from no change to a gain of 0.4 percent.
Economists had forecast a 0.2 percent gain in core prices, according to the survey median.
Overall consumer prices increased 3.9 percent in the 12 months ended September, the biggest year-over-year increase since September 2008.
The core CPI climbed 2 percent from September 2010, the same as in the 12 months ended August. Fed policy makers aim for long-run core inflation of about 1.7 percent to 2 percent.
Today’s report showed energy costs increased 2 percent from a month earlier.
Fuel expenses may go down this month. The cost of a gallon of regular gasoline at the pump, which averaged $3.58 in September, dropped to $3.47 yesterday.
Clothing prices dropped 1.1 percent, the biggest decline since September 1998, today’s report showed. Used cars and trucks cost 0.6 percent less.
Today’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.1 percent, the smallest gain since May, after rising 0.2 percent in August.
It may be difficult to keep rental costs down. The vacancy rate for apartments dropped in the third quarter to 5.6 percent, the lowest since 2006, according to an Oct. 6 report from Reis Inc. Effective rents, or what tenants pay after landlord giveaways are included, rose on a year-over-year basis in 81 out of the 82 metropolitan areas tracked by the New York-based property-research company.
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.”
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. Editor: Carlos Torres
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