The cost of living in the U.S. rose in September for a second month, reflecting a jump in energy expenses that failed to trickle through to other goods and services.
The consumer-price index increased 0.6 percent for a second month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.5 percent advance. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.
Companies such as Abercrombie & Fitch Co. (ANF:US) and Safeway Inc. (SWY:US) are among those saying price increases are difficult to achieve as 12.1 million Americans remain unemployed and rising fuel bills eat into workers’ paychecks. The lack of pricing power is one reason the Federal Reserve eased policy further to focus on jump-starting employment.
“There isn’t any meaningful risk of short-term core inflation,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the gain in core prices. “When it comes to everyday goods and services, the lack of demand just isn’t going to push prices higher.”
Treasuries remained lower after the report. The benchmark 10-year yield climbed four basis points, or 0.04 percentage point, to 1.71 percent at 9:50 a.m. in New York, according to Bloomberg Bond Trader prices.
Industrial production in the U.S. rose more than forecast in September, partially reversing the prior month’s slump, indicating manufacturers are regaining their footing.
Output at factories, mines and utilities rose 0.4 percent after a 1.4 percent decline in August that was the biggest since March 2009, the Federal Reserve reported today in Washington.
Estimates for the consumer-price index from the 86 economists surveyed ranged from gains of 0.1 percent to 0.7 percent.
Today’s consumer-price report also suggested the estimated monthly payment for retired workers receiving Social Security benefits will rise 1.7 percent in 2013. It’s up to the Social Security Administration to issue the official figures based on today’s data.
In the 12 months ended in September, prices rose 2 percent, the report showed.
The increase in the core reading followed similar 0.1 percent gains in August and July and was lower than the 0.2 percent advance median forecast by economists surveyed. Core prices were up 2 percent for the year through September, compared with 1.9 percent for the year through August.
Today’s report showed energy costs increased 4.5 percent from a month earlier. The cost of a gallon of regular gasoline averaged $3.83 in September compared with $3.70 in August, according to data from auto club AAA.
The jump in fuel costs is hurting Americans’ buying power. Hourly wages adjusted for inflation dropped 0.3 percent on average in September after falling 0.6 percent the prior month, a separate Labor Department report today showed. Over the past 12 months, real hourly pay fell 0.2 percent.
Food costs advanced 0.1 percent. Safeway, the second- largest U.S. grocery store chain, is among merchants with first- hand knowledge of the lack of pricing power.
“There is a reluctance to raise prices” for packaged goods, said Steven Burd, the Pleasanton, California-based company’s chief executive officer said in an Oct. 11 earnings call. While rising expenses for some commodities like eggs and cheese can be passed through, “the packaged goods sector is behaving cautiously with respect to cost increases.”
The core measure was restrained by a 1.4 percent drop in the cost of used cars and trucks, the biggest decline since February 2009. New-car prices also retreated, falling 0.1 percent from August.
Fed policy makers have said they aren’t worried about a spike in inflation. Federal Open Market Committee “members generally continued to anticipate that, with longer-term inflation expectations stable and given the existing slack in resource utilization, inflation over the medium term would run at or below the Committee’s longer-run objective of 2 percent,” according to the minutes of their Sept. 12-13 meeting.
The central bankers’ inflation goal is part of their dual mandate for stable prices and maximum employment. Their preferred price measure, issued by the Commerce Department and tied to consumer spending, rose 1.5 percent in the 12 months ended in August.
Given the outlook for employment and inflation, the Fed said Sept. 13 it would buy $40 billion of mortgage bonds a month until the U.S. sees what Chairman Ben S. Bernanke described as an “ongoing, sustained improvement in the labor market.” The Fed said it will also probably hold its target lending rate near zero at least through mid-2015.
New Albany, Ohio-based Abercrombie & Fitch, the teen clothing retailer, said this month it may roll back price increases taken last year at its flagship stores when cotton costs soared.
“This year, we’re going to be lowering those prices back to where they were previously,” Brian Logan, controller and vice president for finance, said during an Oct. 2 consumer conference. “We weren’t as competitive with those items, so we thought it was more appropriate to bring that price back down.”
A Labor Department report on Oct. 12 showed prices paid to producers climbed 1.1 percent in September on rising fuel costs. Import prices in the U.S., reported Oct. 11, also advanced 1.1 percent last month.
The CPI is the broadest of the three monthly price measures from the Labor Department because it includes goods and services. About 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
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