Consumer Prices in U.S. Probably Rose in November on Fuel Costs

The cost of living in the U.S. probably rose for a fifth month in November, led by higher gasoline prices that aren’t filtering through to other goods and services, economists said before a government report today.

The consumer-price index increased 0.2 percent for a second month, according to the median forecast of economists surveyed by Bloomberg News before a Labor Department report. The so- called core measure, which excludes more volatile food and energy costs, may have increased 0.6 percent from November 2009, matching a record low. Another report may show industrial production increased in November by the most in four months.

Retailers such as Target Corp. and Wal-Mart Stores Inc. are discounting merchandise to stoke demand during the holiday shopping season as joblessness lingers near 10 percent. Limited inflation and a stagnant labor market underscore the Federal Reserve’s decision yesterday to stay the course as it pursues record monetary stimulus.

“There’s very little ability to raise prices,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “I would expect inflation to remain relatively low in the near term and then gradually move back up.”

The Labor Department’s price data are due at 8:30 a.m. in Washington. Estimates of the 79 economists surveyed ranged from no change to a gain of 0.3 percent.

Prices excluding fuel and food rose 0.1 percent from a month earlier after no change in October, according to the Bloomberg survey. The 0.6 percent projected increase in core costs from a year ago would match October’s 12-month gain as the smallest since records began in 1958.

Food and Fuel

So far this year, price increases have occurred primarily in food and energy, reflecting increased demand from China and other emerging markets for commodities. The cost of a gallon of regular gasoline at the pump averaged $2.86 in November, up from $2.80 the prior month, according to data from AAA, the nation’s largest motoring group.

At the same time, the struggling housing market is restraining the CPI. Rents, which account for about 40 percent of core consumer prices, have been held in check as foreclosures push more houses into the rental market.

“Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward,” Fed officials said yesterday in their Federal Open Market Committee statement.

Employment and Inflation

The Fed, which has a statutory mandate of fostering maximum employment and price stability, said “the unemployment rate is elevated, and measures of underlying inflation are somewhat low.” This explains why the central bank last month announced it would buy up to $600 billion in Treasuries through June.

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 in November increased 0.8 percent and the cost of goods excluding fuel and food rose 0.3 percent, both more than forecast. The cost of goods imported into the U.S., reported last week, rose 1.3 percent from the prior month, the most in a year, and higher than the median estimate in a Bloomberg survey.

Manufacturing Gains

Manufacturing is still powering ahead after spearheading the U.S. economic recovery from the worst recession since the 1930s. A report from the Fed, scheduled for release at 9:15 a.m. in Washington, will show industrial production rose 0.3 percent in November after being little changed a month earlier, according to a Bloomberg survey.

Figures from the New York Fed at 8:30 a.m. may show manufacturing in that region rebounded this month after contracting in November for the first time since July 2009, economists said.

The strength in manufacturing helps explain why shares of machinery makers have outpaced broader indexes. The Standard & Poor’s Machinery Index, which includes Cummins Inc. and Caterpillar Inc., has surged 45 percent this year compared with an 11 percent gain in the S&P 500.

Housing, the industry at the forefront of the recession, has shown little improvement. The National Association of Home Builders/Wells Fargo’s confidence index held at 16 this month, according to the median forecast in a Bloomberg survey. The figures are slated for 10 a.m. and readings less than 50 mean more respondents said conditions are poor than good.

Retail Prices

Meantime, retailers that are cutting prices are drumming up demand, while those that not discounting enough are struggling.

Best Buy Co., the world’s largest consumer-electronics retailer, yesterday slashed its annual profit forecast amid increasing competition from Wal-Mart and Target. Best Buy lost TV sales in the third quarter to “the large discounters” that promoted the least-expensive models, Chief Executive Brian Dunn said on a conference call.

“What has really gone big in home theater so far this season is opening price point, tier-three brands going out at really, really hot prices,” Dunn, 50, said yesterday in a telephone interview. “We don’t feature them.”

Consumers bought cheaper models of flat-panel TVs with screens of 36 inches and smaller for $229 to $299, Dunn said. Rising demand for smartphones and tablet computers also hurt spending on TVs, he said.

For Best Buy, “the U.S. business was pretty miserable,” Joe Feldman, an analyst at Telsey Advisory Group in New York, said yesterday. “Sales are going to places like Amazon, Wal- Mart, Target, Costco and Sears.”

                     Bloomberg Survey

================================================================
                               CPI     Core     Ind.     Cap.
                                        CPI    Prod.    Util.
                              MOM%     MOM%     MOM%        %
================================================================

Date of Release              12/15    12/15    12/15    12/15
Observation Period            Nov.     Nov.     Nov.     Nov.
----------------------------------------------------------------
Median                        0.2%     0.1%     0.3%    75.0%
Average                       0.2%     0.1%     0.3%    75.0%
High Forecast                 0.3%     0.2%     0.8%    75.5%
Low Forecast                  0.0%     0.0%    -0.1%    74.8%
Number of Participants          79       77       78       68
Previous                      0.2%     0.0%     0.0%    74.8%
----------------------------------------------------------------
4CAST Ltd.                    0.2%     0.1%     0.1%    74.9%
ABN Amro Inc.                 0.2%     0.0%     ---      ---
Action Economics              0.3%     0.1%     0.3%    75.0%
Aletti Gestielle SGR          0.3%     0.0%     0.3%    75.0%
Ameriprise Financial          0.2%     0.0%     0.3%    75.0%
Banesto                       ---      ---      0.3%     ---
Bank of Tokyo- Mitsubishi     0.2%     0.1%     0.2%    74.9%
Bantleon Bank AG              0.3%     0.1%     0.3%     ---
Barclays Capital              0.1%     0.1%     0.3%    75.0%
Bayerische Landesbank         0.2%     0.1%     0.4%    75.1%
BBVA                          0.2%     0.1%     0.3%    74.9%
BMO Capital Markets           0.2%     0.1%     0.4%    75.1%
BNP Paribas                   0.2%     0.0%     0.2%    74.9%
BofA Merrill Lynch Research   0.1%     0.1%     0.1%    74.9%
Briefing.com                  0.2%     0.1%     0.2%    75.0%
Capital Economics             0.3%     0.0%     0.3%    75.0%
CIBC World Markets            0.1%     0.0%     0.2%    75.0%
Citi                          0.1%     0.1%     0.2%    74.8%
ClearView Economics           0.2%     0.1%     0.8%    75.5%
Commerzbank AG                0.1%     0.1%     0.3%    75.0%
Credit Agricole CIB           0.2%     0.1%     0.3%    74.8%
Credit Suisse                 0.1%     0.1%     0.2%    75.0%
Daiwa Securities America      0.2%     0.1%     0.3%    75.0%
DekaBank                      0.2%     0.1%     0.5%    75.2%
Desjardins Group              0.1%     0.1%     0.1%    74.9%
Deutsche Bank Securities      0.2%     0.1%     0.4%    75.2%
Deutsche Postbank AG          0.2%     0.1%     0.2%     ---
DZ Bank                       0.1%     0.1%     0.2%    75.0%
Exane                         0.2%     0.1%     0.5%     ---
First Trust Advisors          0.2%     0.1%     0.3%    75.1%
FTN Financial                 0.3%     0.0%     0.1%    74.9%
Goldman, Sachs & Co.          0.3%     0.1%     0.5%    75.2%
Helaba                        0.2%     0.1%     0.5%    75.3%
High Frequency Economics      0.2%     0.1%     0.6%    75.4%
HSBC Markets                  0.2%     0.1%     0.5%    75.1%
Hugh Johnson Advisors         0.3%     0.2%     0.2%    74.8%
Ibersecurities                0.2%     ---      0.3%    74.9%
IDEAglobal                    0.2%     0.1%     0.2%     ---
IHS Global Insight            0.1%     0.0%     0.2%     ---
Informa Global Markets        0.1%     0.0%     0.2%    74.9%
ING Financial Markets         0.2%     0.1%     0.5%    75.2%
Insight Economics             0.3%     0.1%     0.5%    75.2%
Intesa-SanPaulo               0.2%     0.1%     0.3%     ---
J.P. Morgan Chase             0.1%     0.1%     0.4%    75.1%
Janney Montgomery Scott       0.2%     0.0%     0.2%    74.8%
Jefferies & Co.               0.2%     0.1%     0.4%    75.2%
Landesbank Berlin             0.3%     0.1%     0.2%    75.0%
Landesbank BW                 0.1%     0.0%     0.4%    75.2%
Maria Fiorini Ramirez         0.2%     0.1%     0.3%    75.0%
MF Global                     0.1%     0.0%     0.0%    74.8%
Moody’s Analytics             0.1%     0.1%     0.2%    74.9%
Morgan Keegan & Co.           0.3%     0.2%     0.0%    74.8%
Morgan Stanley & Co.          0.2%     0.1%     0.0%    74.8%
National Bank Financial       0.2%     0.0%     0.4%    75.1%
Natixis                       0.2%     0.0%    -0.1%    74.8%
Newedge                       0.2%     0.1%     0.1%    74.9%
Nomura Securities Intl.       0.1%     0.1%     0.3%    75.0%
Nord/LB                       0.2%     ---      0.3%    75.0%
Pierian Capital               0.1%     0.0%     0.2%     ---
Pierpont Securities LLC       0.2%     0.1%     0.4%    75.1%
PineBridge Investments        0.3%     0.1%     0.2%     ---
PNC Bank                      0.1%     0.1%     0.3%    75.0%
Raiffeisen Zentralbank        0.2%     0.2%     0.4%    75.1%
Raymond James                 0.2%     0.1%     0.4%    75.2%
RBC Capital Markets           0.2%     0.0%     0.3%    75.0%
RBS Securities Inc.           0.1%     0.0%     ---      ---
Scotia Capital                0.2%     0.1%     0.2%    74.9%
Societe Generale              0.1%     0.1%     0.4%    75.1%
Standard Chartered            0.2%     0.1%     0.3%    75.0%
Stone & McCarthy Research     0.2%     0.0%     0.5%    75.2%
TD Securities                 0.1%     0.1%     0.4%    75.0%
Thomson Reuters/IFR           0.2%     0.1%     0.3%    75.0%
Tullett Prebon                0.2%     0.1%     0.3%    75.0%
UBS                           0.2%     0.1%     0.1%    74.8%
Union Investment              0.3%     0.1%     0.3%    75.0%
University of Maryland        0.2%     0.1%     0.4%    75.1%
Wells Fargo & Co.             0.2%     0.1%     0.4%    75.1%
WestLB AG                     0.2%     0.1%     0.3%    75.0%
Westpac Banking Co.           0.1%     0.1%     0.4%     ---
Wrightson ICAP                0.0%     0.1%     0.2%    75.0%
================================================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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