The cost of living in the U.S. declined in March for the first time in four months as cheaper gasoline and clothing kept inflation in check.
The consumer-price index dropped 0.2 percent after a 0.7 percent jump in February, the Labor Department said today in Washington. The median forecast in a Bloomberg survey called for no change. The core measure, which excludes volatile food and energy costs, rose 0.1 percent, less than forecast.
Some companies such as Starbucks Corp. (SBUX:US) are offering price reductions to stoke household demand that cooled last month amid smaller gains in employment and stagnant wages. Limited inflation is allowing the Federal Reserve to stick to record monetary policy stimulus in a bid to propel the economy.
“Inflation is still very, very low,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida, who projected a 0.3 percent decline in the CPI. “It allows the Fed to be very, very accommodative.”
Estimates of the 82 economists in the Bloomberg survey ranged from a decline of 0.3 percent to a gain of 0.3 percent. Economists forecast a 0.2 percent gain in the core index, according to the survey median.
Another report showed new-home construction jumped more than forecast in March as multifamily projects climbed to the highest level in more than seven years. Starts rose 7 percent to a 1.04 million annual rate, the most since June 2008, following a revised 968,000 annual rate in February that was larger than previously reported, Commerce Department data showed in Washington.
Stock-index futures extended earlier gains after the reports as corporate earnings topped estimates and commodity producers advanced. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.9 percent to 1,556.7 at 8:52 a.m. in New York
For the 12 months that ended in March, consumer prices increased 1.5 percent, the smallest gain since July, compared with a 2 percent year-over-year gain reported in February. For the same period, the core CPI rose 1.9 percent, following a 2 percent increase a month earlier.
Energy costs decreased 2.6 percent from a month earlier. Gasoline prices dropped 4.4 percent, while electricity was 0.6 percent cheaper.
Prices at the gas pump have continued to fall this month. Since the end of March, the average cost of a gallon of regular- grade gasoline declined 3 percent, or 11 cents, to $3.53 on April 14, according to AAA, the largest U.S. motoring organization.
The cost of clothing slumped 1 percent in March, the biggest decrease since April 2001. The decline was led by a record fall in men’s socks and underwear, and the largest drop in clothing for infants and toddlers since February 1999.
Food costs were unchanged in March from a month earlier.
Prices for new automobiles and parts increased 0.1 percent, while used vehicle prices climbed 1.2 percent. The cost of medical-care services rose 0.3 percent for a second month. A category that tracks rental prices climbed 0.2 percent.
After adjusting for the change in inflation, earnings rose, another Labor Department report showed. Hourly earnings adjusted for inflation climbed 0.2 percent in March after a 0.6 percent decrease the prior month and were up 0.3 percent over the past 12 months.
An April 5 report from the agency showed job growth slowed last month. Payrolls grew by 88,000 workers, the smallest gain in nine months, after a 268,000 gain in February.
The setback in the labor market and limited wage growth helps explain a pause in consumer spending. Retail sales in March dropped by the most in nine months, pointing to a slowdown in household purchases as the first quarter drew to a close. The 0.4 percent drop was the biggest setback since June and followed a 1 percent gain in February, the Commerce Department reported last week.
The sales data prompted some economists to trim consumer spending forecasts from what was projected to be the best quarter in two years. Gains in hiring and wages will be needed to ensure any slowdown proves temporary as federal budget cuts and an increase in the payroll tax restrain the expansion.
Starbucks, the world’s largest coffee-shop operator, this week said it will lower prices on some of its packaged coffees sold in supermarkets as it seeks to broaden its market.
“This will allow us to both enhance the value that we’re providing our existing packaged coffee customers, and hopefully increase the frequency which they purchase Starbucks and Seattle’s Best coffee, as well as attract new customers,” Starbucks spokesman Jim Olson said in an interview.
Other companies including privately-held Levi Strauss & Co. and Jos. A. Bank Clothiers Inc. are using promotions and sales to draw shoppers.
Jos. A. Bank, the men’s retailer based in Hampstead, Maryland, “used more markdowns and progressively more aggressive promotional activity” to drive sales last year even as materials prices rose, President and Chief Executive Neal Black said.
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