Bloomberg News

Consumer Prices in U.S. Rose Less Than Forecast in January

February 20, 2012

(Updates with economist comment in fourth paragraph.)

Feb. 17 (Bloomberg) -- The cost of living in the U.S. rose less than forecast in January, supporting the Federal Reserve’s view that inflation will be contained.

The consumer-price index increased 0.2 percent after no change the prior month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.3 percent gain. Over the past 12 months, prices climbed 2.9 percent, the smallest year-to-year advance since March 2011.

Retailers from Limited Brands Inc. and Target Corp. discounted merchandise after the holidays as 12.8 million Americans remain unemployed, showing companies have little pricing power. A lack of inflation is one reason Fed policy makers have said they intend to keep interest rates low through at least 2014.

“We’ve seen the peak” in inflation, said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There is still a reasonable amount of slack in the labor market.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in March rose 0.2 percent to 1,357.5 at 8:49 a.m. in New York amid optimism Greece will get a bailout.

CPI estimates of the 82 economists surveyed ranged from increases of 0.1 percent to 0.4 percent.

Core Prices

The so-called core measure, which excludes more volatile food and energy costs, also increased 0.2 percent, matching the median forecast.

The increase in the core gauge followed a 0.1 percent advance in December. They were up 2.3 percent for the past 12 months, the most since a 2.5 percent increase in the year ended Sept. 2008.

The price report may underscore Fed Chairman Ben S. Bernanke’s comments on Feb. 7 that central bank officials expected inflation to “remain subdued” due to the “well- anchored inflation expectations, more-stable commodity prices, and substantial slack in labor and product markets.”

Household purchases climbed 2.2 percent in 2011 after an increase of 2 percent in 2010, the weakest two-year performance of any post-World War II expansion.

Unemployment has held above 8 percent since February 2009, the longest such run since the monthly record-keeping began in 1948. Nonetheless, the rate is starting to drop, reaching a three-year low of 8.3 percent in January.

Stagnant Wages

While the labor market is improving, paychecks are failing to keep up with even limited inflation. Hourly earnings adjusted for prices were unchanged in January and fell 1 percent over the past 12 months, today’s report showed.

Energy costs increased 0.2 percent in January from a month earlier, as did food costs. An increase in gasoline prices was mostly offset by a drop in costs for natural gas.

The increase in the core measure was driven by rising costs for apparel, toys, tobacco and medical care. Used-car and truck prices dropped as did airline fares. The cost of new automobiles was little changed.

Fed policy makers see inflation decelerating in 2012 to below their 2 percent goal, with most expecting prices to rise 1.4 percent to 1.8 percent this year, according to forecasts released Jan. 25.

“Inflation has been subdued in recent months, and longer- term inflation expectations have remained stable,” the Federal Reserve said Jan. 25. The monetary policy-making committee “also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the committee’s dual mandate” of fostering price stability and maximum employment.

Post-Holiday Discounts

Retailers, including Limited Brands Inc. and Target Corp., posted same-store sales last month that were stronger than forecast as shoppers took advantage of post-holiday discounts. More shoppers cashed out their holiday gift cards and sought out clearances on winter apparel, according to a Bloomberg Industries report.

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.

--With assistance from Kristy Scheuble in Washington. Editor: Carlos Torres

To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net

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


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