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By Bob Willis
Dec. 16 (Bloomberg) -- The cost of living in the U.S. probably fell in November by the most on record, as the value of oil plunged and retailers slashed prices to boost sales before the holidays, economists said ahead of a government report today.
Consumer prices probably dropped 1.3 percent last month, the most since record-keeping began in 1947, according to the median estimate in a Bloomberg News survey before today’s report. Excluding food and energy, so-called core prices may have risen 0.1 percent, the economists said.
Costs for oil and other raw materials plummeted last month as the credit crisis intensified, forcing consumers to slash spending and prompting U.S. automakers to ask for a federal rescue. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve later today to reduce its target rate to the lowest level ever.
“We’re now reversing out of the gains in inflation we saw earlier this year,” said Brian Bethune, chief financial economist at IHS Global Insight Inc. in Lexington, Massachusetts. “The Fed is dealing with a nasty, snarling, self-feeding recession and they can’t leave any ammunition unspent.”
The Labor Department’s consumer-price report is due at 8:30 a.m. today in Washington. Economists’ forecasts of the decline in the index ranged from 0.4 percent to 1.7 percent.
Falling crude oil costs are feeding through to retail prices. A gallon of regular gasoline at the pump plunged 32 percent last month to $2.11, according to AAA.
‘Bubble Has Burst’
“We had a bubble in oil -- the bubble has burst,” David Wyss, chief economist at Standard & Poor’s in New York, said in an interview with Bloomberg Television. “One thing recessions are really good at is bringing down inflation.”
Core prices, which exclude food and energy, rose 0.1 percent last month after a 0.1 percent drop the prior month, according to the survey median.
With inflation less of a concern, the Fed today is forecast to cut its overnight lending rate by half a percentage point to 0.5 percent, according to economists surveyed. The decision will be announced around 2:15 p.m. in Washington.
The Fed, struggling to shore up credit markets and arrest the economy’s slump, has slashed rates from 4.25 percent in December 2007, while using a host of unconventional methods to pump added cash into money markets.
12-Month Recession
The recession, already a year long, will continue to slow inflation. Consumer prices will probably rise just 0.7 percent in the 12 months ended in September 2009, the smallest year- over-year gain since 1962, according to economists surveyed last week by Bloomberg News.
Consumer spending will fall at a 4 percent annual pace in the current quarter, the most since 1980, and drop 1 percent for all of 2009, the economists forecast.
Weak spending, exacerbated by the worst credit crisis in seven decades, pushed car sales in November to their lowest level since 1982, underscoring calls for a government bailout for General Motors Corp. and Chrysler LLC.
“Sales are at depression levels,” Mike Jackson, chief executive officer at AutoNation Inc., the largest car dealer in the U.S., said in a Bloomberg Television interview from Fort Lauderdale, Florida, last week. “What’s needed is a restoration of credit” and a “stimulus package for the economy, including incentives for the auto industry and a bridge loan” for the automakers.
The housing recession that triggered the credit crisis shows no signs of abating. New-home starts in November dropped to a 736,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report today at 8:30 a.m.
“More needs to be done” to stop the cascade of foreclosures that is deepening the housing crisis, Fed Chairman Ben S. Bernanke said in a speech in Washington on Dec. 4. “Policy initiatives to reduce the number of preventable foreclosures should be high on the agenda.”
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CPI Core Housing Building
CPI Starts Permits
MOM% MOM% ,000’s ,000’s
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Date of Release 12/16 12/16 12/16 12/16
Observation Period Nov. Nov. Nov. Nov.
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Median -1.3% 0.1% 736 700
Average -1.2% 0.1% 738 703
High Forecast -0.4% 0.2% 810 740
Low Forecast -1.7% -0.3% 650 660
Number of Participants 71 70 70 47
Previous -1.0% -0.1% 791 730
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4CAST Ltd. -1.2% 0.1% 720 710
Action Economics -1.2% 0.2% 730 700
AIG Investments -0.8% 0.1% 763 ---
Aletti Gestielle SGR -1.2% 0.1% 740 720
Argus Research Corp. -0.4% 0.1% 775 ---
Banc of America Securitie -0.9% 0.1% 750 ---
Bank of Tokyo- Mitsubishi -1.3% 0.2% 732 692
Bantleon Bank AG -1.2% 0.1% 720 690
Barclays Capital -1.6% 0.1% 725 ---
BMO Capital Markets -1.0% 0.1% 736 700
BNP Paribas -1.6% 0.1% 720 ---
Briefing.com -1.5% 0.0% 725 700
CIBC World Markets -1.0% 0.0% 780 700
Citi -1.4% 0.2% 760 700
ClearView Economics -0.8% 0.0% 760 ---
Commerzbank AG -1.4% 0.1% 700 660
Credit Suisse -1.6% 0.0% 720 ---
Daiwa Securities America -0.9% 0.1% 760 ---
Desjardins Group -1.3% 0.1% 710 715
Deutsche Bank Securities -1.5% 0.0% 780 700
Deutsche Postbank AG -1.1% 0.1% 750 ---
Dresdner Kleinwort -1.4% 0.1% 750 ---
DZ Bank -1.5% 0.0% 720 690
First Trust Advisors -1.6% 0.2% 700 ---
Fortis -1.0% 0.2% 750 ---
FTN Financial -1.7% 0.1% 750 715
Goldman, Sachs & Co. -1.4% 0.1% 775 ---
Helaba -1.4% 0.1% 740 710
Herrmann Forecasting -1.2% 0.1% 751 700
High Frequency Economics -1.5% 0.2% 750 700
HSBC Markets -1.5% 0.1% 720 700
IDEAglobal -1.2% 0.1% 735 695
IHS Global Insight -1.7% 0.0% 716 708
Informa Global Markets -0.7% 0.0% 720 695
ING Financial Markets -1.5% 0.1% 745 695
Insight Economics -1.2% 0.2% 750 ---
Intesa-SanPaulo -1.3% 0.1% 700 ---
J.P. Morgan Chase -1.5% 0.1% 740 710
JPMorgan’s Private Wealth -1.1% 0.1% 740 700
Landesbank Berlin -0.5% 0.2% 750 740
Lloyds TSB -0.9% 0.0% 730 690
Maria Fiorini Ramirez Inc -1.3% 0.1% 750 ---
Merrill Lynch -1.6% 0.0% 735 680
MFC Global Investment Man -1.5% -0.1% 725 695
Moody’s Economy.com -1.3% -0.1% 760 700
Morgan Stanley & Co. -1.4% 0.1% 750 ---
National Bank Financial -0.9% 0.0% 740 720
National City Corporation -1.2% 0.2% 810 740
Natixis -1.2% 0.1% 735 ---
Newedge -1.0% 0.1% --- ---
Nomura Securities Intl. -1.4% 0.0% 785 710
Nord/LB -1.4% 0.1% 720 730
PNC Bank -1.3% 0.1% 750 ---
Raymond James -1.5% 0.1% 760 720
RBS Greenwich Capital -1.4% 0.0% 730 ---
Ried, Thunberg & Co. -1.2% 0.1% 720 700
Schneider Foreign Exchang -1.4% 0.2% 710 720
Scotia Capital -1.0% -0.3% 690 690
Societe Generale -1.3% 0.1% 770 ---
Standard Chartered --- --- 720 685
Stone & McCarthy Research -1.4% -0.3% 750 ---
TD Securities -1.1% 0.1% 720 700
Thomson Financial/IFR -0.6% 0.0% 755 685
Tullett Prebon -1.2% 0.1% 730 700
UBS Securities LLC -1.4% 0.1% --- ---
Unicredit MIB -1.2% 0.1% 730 710
University of Maryland -1.3% 0.1% 735 690
Wachovia Corp. -1.3% 0.1% 650 ---
Wells Fargo & Co. -1.2% --- 730 700
WestLB AG -0.8% 0.1% 780 720
Westpac Banking Co. -1.5% 0.0% 712 694
Wrightson Associates -1.2% 0.1% 720 700
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To contact the report responsible for this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: December 16, 2008 00:00 EST
