Bloomberg News

Consumer Prices in U.S. Unexpectedly Fell 0.1% in October

November 17, 2011

(Updates with economist’s comment in fourth paragraph.)

Nov. 16 (Bloomberg) -- The cost of living in the U.S. unexpectedly fell in October for the first time in four months, a sign that inflationary pressures may be starting to recede.

The consumer-price index declined 0.1 percent from the prior month after a 0.3 percent rise, a report from the Labor Department showed today in Washington. The so-called core rate that excludes volatile food and fuel costs rose 0.1 percent, matching September as the smallest gain this year.

Receding raw-material costs compared with earlier this year may make it easier for some retailers to hold the line on prices as they compete for consumers coping with stagnating incomes entering the holiday shopping season. Less inflation also gives Federal Reserve officials more leeway to take additional measures should the economy falter.

“The inflation outlook is pretty benign,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly projected the CPI decline. “The fact that recent higher readings are moderating certainly speaks well to the Fed’s accommodative policy.”

The median forecast called for no change in the consumer price index, according to a Bloomberg News survey. Estimates of the 86 economists surveyed ranged from a decline of 0.2 percent to a 0.3 percent gain. Economists projected a 0.1 percent gain in core prices, according to the survey median.

Stock-index futures held earlier losses as the Bank of England said failure by European officials to resolve the debt crisis could hurt the global economy and results from Dell Inc. and Abercrombie & Fitch Co. disappointed investors. The contract on the Standard & Poor’s 500 Index expiring next month dropped 0.9 percent to 1,242.4 at 8:44 a.m. in New York.

Year Ago

Overall consumer prices increased 3.5 percent in the 12 months ended October.

The core CPI climbed 2.1 percent from October 2010. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their Nov. 2 forecast.

Inflation “appears to have moderated since earlier in the year,” Fed officials said in a Nov. 2 statement after their most recent monetary policy meeting.

Policy makers renewed their pledge to hold the benchmark interest rate near zero at least through the middle of 2013 as long as joblessness stays high and the inflation outlook is “subdued.”

Cheaper Gasoline

Today’s report showed energy costs in October decreased 2 percent from a month earlier, reflecting a 3.1 percent drop in gasoline prices and a 3 percent decrease for natural gas.

Fuel expenses may keep falling this month. The cost of a gallon of regular gasoline at the pump averaged $3.43 in October, down from $3.59 a month earlier, according to data from AAA, the nation’s largest motoring group. The price dropped to $3.41 on Nov. 14.

The cost of food in October rose 0.1 percent, the smallest gain this year, restrained by a decrease in produce.

Clothing prices climbed 0.4 percent, today’s report showed. New-vehicle prices decreased 0.3 percent, the most since January 2010. Airline fares also fell.

Today’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, rose 0.2 percent after a 0.1 percent gain in September.

Rental Costs

It may be difficult to keep rental costs from rising. 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.

The decrease in prices allowed Americans to stretch their dollar further. Hourly earnings adjusted for inflation climbed 0.3 percent in October, the biggest gain a year.

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 Labor Department report yesterday showed the producer- price index in October fell for the first time in four months, while the cost of goods excluding fuel and food did not advance for the first time since November 2010. Import prices in the U.S., reported Nov. 10, dropped 0.6 percent from the prior month as oil and food expenses retreated.

Higher materials costs that have now started to recede as well as seasonal clearance of patio furniture “hurt” gross margin in the third quarter at Lowe’s Cos., the Mooresville, North Carolina-based company said Nov. 14.

“We expect inflation to be a little bit lower,” Robert Hull, chief financial officer for Lowe’s, the second-largest U.S. home-improvement retailer, said on a conference call with analysts.

--Editor: Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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