U.S. Consumer Prices Rose 0.3% in August, Core Rate Flat

The cost of living in the U.S. climbed in August for a second month as energy and food prices increased, while other goods and services showed little change.

The consumer-price index rose 0.3 percent for a second month, figures from the Labor Department showed today in Washington. Excluding volatile food and fuel costs, the so- called core rate was unchanged, compared with a projected gain of 0.1 percent, the median forecast in a Bloomberg News survey.

While demand is strong enough to avert an extended and broad-based decline in prices, companies such as Wal-Mart Stores Inc. and Kroger Co. are offering discounted merchandise to attract shoppers. A limited risk of inflation is one reason economists project the Federal Reserve will hold interest rates close to zero until late next year.

“These numbers won’t be a surprise to Fed policy makers,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who accurately forecast the figures. “They need to worry about unemployment and boosting growth and not worry about inflation.”

The forecast gain in consumer prices was based on the median of 77 economists in the Bloomberg survey. Estimates ranged from gains of 0.1 percent to 0.4 percent.

Stock-index futures held earlier gains and Treasury securities rose after the figures. Futures on the Standard & Poor’s 500 Index expiring in December rose 0.3 percent to 1,126.3 at 8:44 a.m. in New York. The yield on the 10-year Treasury note fell to 2.71 percent from 2.76 percent late yesterday.

Year-Over-Year

In the 12 months ended in August, prices rose 1.1 percent following a 1.2 percent year-over-year gain the prior month.

The core rate rose 0.9 percent from August 2009. The year- over-year core has increased 0.9 percent each month since April, matching the smallest gain since 1966.

Energy costs increased 2.3 percent from a month earlier, and food costs rose 0.2 percent.

Owners-equivalent rent, one of the categories designed to track rental prices, was unchanged after rising 0.1 percent in July and June. Apparel prices and air fares both declined 0.1 percent in August. The cost of medical care increased 0.2 percent.

The economy is slowing without lapsing into another recession while inflation remains subdued, according to the Beige Book survey by 12 regional Fed banks, which reflected information on or before Aug. 30.

Fed on Prices

“Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials,” policy makers said in the report, released Sept. 8.

The lack of price pressures gives central bankers scope to leave the benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008. A Bloomberg survey taken Sept. 1 to Sept. 9 showed economists pushed back the timing of the first rate hike to the fourth quarter of 2011, from the prior three months.

President Barack Obama’s approval ratings have slipped as economic growth slowed this year and employment stagnated. Fifty-six percent of voters said they disapproved of his handling of the economy, according to a poll by Quinnipiac University taken Aug. 31 to Sept. 7.

Kroger, the largest U.S. grocery-store chain, reported second-quarter profit that exceeded analysts’ estimates. Sales by stores open for at least five quarters jumped 2.7 percent as the Cincinnati-based chain used promotions to compete with Wal- Mart, the world’s biggest retailer.

‘Challenging’

“The competitive environment remains challenging,” David Dillon, Kroger’s chief executive officer, said on a conference call Sept. 14. “During the quarter, we saw significant and aggressive promotional pricing at several competitors.”

The CPI is the broadest of three monthly price gauges from the Labor Department, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

A Labor Department report yesterday showed the producer- price index increased 0.4 percent, the most in five months and twice the gain in July. The cost of goods imported into the U.S., reported earlier this week, rose 0.6 percent from the prior month.

To contact the reporter on this story: Shobhana Chandra at schandra1@bloomberg.net

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