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By Bob Willis
Nov. 19 (Bloomberg) -- The cost of living in the U.S. probably slid in October by the most in almost six decades as fuel costs plummeted and retailers discounted merchandise to entice shell-shocked customers, economists said before a government report today.
Consumer prices probably dropped 0.8 percent last month, the most since 1949, after being unchanged in September, according to the median estimate in a Bloomberg News survey. Excluding food and energy, so-called core prices may have risen 0.1 percent for a second month.
A recession that may become the worst in decades raises the risk that deflation, or a prolonged decline in prices, will be another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Target Corp. is among retailers cutting prices in an effort to lure away cash-strapped holiday shoppers from Wal-Mart Stores Inc.
“It is remarkable that in just a few months fears have switched from inflation to deflation,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. The about-face is “a testament to how suddenly the global economy’s expansion has turned into recession.”
The Labor Department’s consumer-price report is due at 8:30 a.m. in Washington. Forecasts in the survey of 77 economists ranged from a decline of 1.2 percent to a 0.4 percent increase.
A separate report at the same time may show the housing recession at the heart of the economic downturn shows no signs of letting up. New-home starts in October dropped to a 780,000 annual pace, the lowest level since records began in 1959, economists forecast the Commerce Department will report.
Gasoline Plummets
The drop in consumer prices last month was probably led by a slump in fuel costs. A gallon of regular gasoline at the pump averaged $3.08 in October, down 17 percent from the prior month, according to AAA. The price dropped to $2.07 a gallon on Nov. 17.
A Labor report yesterday showed wholesale prices fell 2.8 percent last month, the most on record. Last week, the government also said the cost of imported goods declined by the most ever.
Americans are pulling back even as fuel costs retreat. Retail sales fell 2.8 percent last month, the most on record, Commerce Department figures showed last week. Mounting job losses and record foreclosures are causing American consumers, who account for more than two-thirds of the economy, to retrench.
Wal-Mart, the world’s largest retailer, said yesterday it planned to reduce U.S. prices on Thanksgiving food and Christmas merchandise to lure customers during the holidays.
More ‘Rollbacks’
“You’ll see a lot of rollbacks,” Eduardo Castro-Wright, Wal-Mart’s U.S. stores chief, told analysts at a Morgan Stanley conference in New York. Rollbacks refer to price reductions the retailer scatters throughout grocery, pharmacy and other departments to spur sales.
Target, the second-largest U.S. discounter, said this week it plans to add more grocery items and offer “sharper” discounts to draw shoppers who are shunning jewelry, clothing and home goods, which account for more than 40 percent of its revenue.
“Right now, the consumer is very hesitant,” Chief Executive Officer Gregg Steinhafel said during the company’s Nov. 17 earnings call. “They’re very stressed.”
Sales of clothing and home goods have been “sharply lower,” partly because of banks decreasing consumer credit limits, Chief Financial Officer Douglas Scovanner said during the call.
Leaders in the U.S., Europe and Asia are calling for increased government spending to make up for the loss of consumer purchasing power and lessen the global recession. Obama and House Democrats are planning to spend as much as half a trillion dollars to stimulate the world’s biggest economy and U.K. Prime Minister Gordon Brown pressed other leaders of the Group of 20 nations to follow that effort last weekend.
Bloomberg Survey
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CPI Core Housing Building
CPI Starts Permits
MOM% MOM% ,000’s ,000’s
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Date of Release 11/19 11/19 11/19 11/19
Observation Period Oct. Oct. Oct. Oct.
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Median -0.8% 0.1% 780 774
Average -0.7% 0.1% 783 773
High Forecast 0.4% 0.3% 870 880
Low Forecast -1.2% 0.0% 700 700
Number of Participants 77 77 75 48
Previous 0.0% 0.1% 817 805
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4CAST Ltd. -1.0% 0.1% 780 770
Action Economics -0.7% 0.2% 817 807
AIG Investments -0.5% 0.1% 800 ---
Aletti Gestielle SGR -0.7% 0.1% 800 780
Ameriprise Financial Inc -0.4% 0.1% 790 780
Argus Research Corp. -0.3% 0.1% 812 ---
Banc of America Securitie -0.9% 0.2% 760 ---
Bank of Tokyo- Mitsubishi -0.7% 0.2% 744 744
Bantleon Bank AG -0.7% 0.2% 770 760
Barclays Capital -0.9% 0.2% 775 ---
BMO Capital Markets -0.8% 0.1% 776 765
BNP Paribas -0.9% 0.1% 775 ---
Briefing.com -0.7% 0.1% 780 760
Calyon -0.5% 0.2% 776 760
CIBC World Markets -0.8% 0.2% 760 755
Citi -0.7% 0.1% 790 780
ClearView Economics -0.5% 0.1% 750 ---
Commerzbank AG -0.9% 0.1% 780 770
Credit Suisse -0.8% 0.1% 800 ---
Daiwa Securities America 0.4% 0.2% 850 ---
DekaBank -0.8% 0.1% 750 750
Desjardins Group -0.6% 0.1% 790 795
Deutsche Bank Securities -0.6% 0.1% 750 775
Deutsche Postbank AG -0.8% 0.1% 790 ---
Dresdner Kleinwort -0.7% 0.1% 780 ---
DZ Bank -0.6% 0.2% 775 750
First Trust Advisors -0.9% 0.2% 762 ---
Fortis -0.8% 0.2% 800 ---
FTN Financial -0.5% 0.1% 775 ---
Goldman, Sachs & Co. -0.9% 0.1% 776 ---
Helaba -0.3% 0.1% 780 765
Herrmann Forecasting -1.0% 0.2% 775 757
High Frequency Economics -0.9% 0.2% 780 750
Horizon Investments -0.9% 0.1% 760 ---
HSBC Markets -0.8% 0.2% 760 750
IDEAglobal -0.9% 0.1% 795 780
IHS Global Insight -0.9% 0.2% 778 780
Informa Global Markets -0.9% 0.1% 812 800
ING Financial Markets -0.6% 0.0% 760 775
Insight Economics -0.6% 0.2% 795 ---
Intesa-SanPaulo -0.9% 0.2% 800 ---
J.P. Morgan Chase -0.8% 0.2% 790 790
Janney Montgomery Scott L -1.0% 0.2% 783 828
JPMorgan’s Private Wealth -0.6% 0.1% 780 760
Landesbank Berlin -0.2% 0.3% 840 820
Lloyds TSB -0.8% 0.2% 780 780
Maria Fiorini Ramirez Inc -0.8% 0.1% --- ---
Merk Investments -0.8% 0.2% 750 730
Merrill Lynch -0.9% 0.1% 755 745
MFC Global Investment Man -1.0% 0.0% 775 775
Moody’s Economy.com -0.6% 0.1% 780 730
Morgan Keegan & Co. -1.0% 0.1% 775 ---
Morgan Stanley & Co. -1.0% 0.1% 775 ---
National Bank Financial -0.9% 0.1% 785 770
National City Corporation -0.2% 0.2% 870 880
Newedge -1.0% 0.1% --- ---
Nomura Securities Intl. -0.9% 0.1% 830 820
Nord/LB -0.8% 0.2% 780 790
PNC Bank -0.5% 0.1% 780 ---
RBS Greenwich Capital -1.0% 0.1% 760 ---
Ried, Thunberg & Co. -0.9% 0.2% 770 ---
Schneider Trading Associa -0.9% 0.2% 776 748
Scotia Capital -1.0% 0.1% 700 700
Societe Generale -0.5% 0.1% 820 ---
Standard Chartered -0.8% 0.2% 780 773
Stone & McCarthy Research -0.8% 0.0% 795 ---
TD Securities -0.5% 0.2% 800 780
Thomson Financial/IFR -0.3% 0.1% 795 775
Tullett Prebon -1.0% 0.0% 770 ---
UBS Securities LLC -1.0% 0.1% 790 ---
Unicredit MIB -0.5% 0.2% 775 775
University of Maryland -0.7% 0.2% 800 780
Wachovia Corp. -0.5% 0.1% 770 ---
Wells Fargo & Co. -0.6% 0.2% 813 798
WestLB AG -0.8% 0.1% 780 770
Westpac Banking Co. -1.2% 0.2% 792 781
Wrightson Associates -0.9% 0.2% 770 770
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To contact the report responsible for this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: November 19, 2008 00:01 EST
