Consumer Prices in U.S. Probably Rose for Seventh Month

The cost of living in the U.S. probably climbed in January for a seventh month, led by higher prices for fuel and food that have yet to filter through to other goods and services, economists said before a report today.

The consumer-price index rose 0.3 percent following a 0.4 percent gain in December, according to the median estimate of 79 economists surveyed by Bloomberg News. The so-called core rate, which excludes volatile food and energy costs, may have increased 0.1 percent for a third month.

Growing economies in Asia and Latin America are boosting global demand for oil and other commodities, raising costs for American factories. Nonetheless, joblessness at 9 percent means companies have little room to pass these expenses to customers, one reason why the Federal Reserve is seeking to boost growth through a second round of unconventional easing.

“With the substantial slack in the U.S. economy, businesses have only a limited ability to pass through higher input costs to consumers,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “While the Fed has acknowledged the recent sharp price increases in gasoline, crude oil and food, they remain focused on the weak gains in core prices.”

Photographer: Jin Lee/Bloomberg

A shopper walks past the Century 21 store in New York, U.S., two days before Christmas on Thursday, Dec. 23, 2010. Confidence among U.S. consumers climbed to a six-month high in December, coinciding with a pickup in holiday sales and fewer job cuts. Close

A shopper walks past the Century 21 store in New York, U.S., two days before Christmas... Read More

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Photographer: Jin Lee/Bloomberg

A shopper walks past the Century 21 store in New York, U.S., two days before Christmas on Thursday, Dec. 23, 2010. Confidence among U.S. consumers climbed to a six-month high in December, coinciding with a pickup in holiday sales and fewer job cuts.

The Labor Department’s price data is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from gains of 0.2 percent to 0.5 percent.

More Claims

Another Labor Department report at the same time may show first-time claims for unemployment benefits rose last week from the lowest level since July 2008. Initial applications rose to 400,000 from 383,000 the prior week, according to the median estimate of economists surveyed.

Fed policy makers took a more optimistic view of the economy last month while maintaining their dissatisfaction with job growth as they pressed forward with an expansion of record monetary stimulus, minutes of last month’s policy meeting released yesterday showed.

Even with soaring commodity costs, the Fed remains concerned that consumer inflation is below its long-range annual target of 1.6 percent to 2 percent.

“Despite further increases in commodity prices, measures of underlying inflation remained subdued and longer-run inflation expectations were stable,” the minutes showed.

Fed’s Concern

Even with soaring commodity costs, the Fed remains concerned that consumer inflation is below its annual target of 1.6 percent to 2 percent.

An unemployment rate that’s held at or above 9 percent since May 2009 is also restraining labor costs. The threat of deflation, or a prolonged decline in prices that’s harmful to the economy, prompted Fed policy makers on Nov. 3 to announce the central bank’s purchase of $600 billion in additional Treasury securities by the end of June.

The yield on the 10-year Treasury note, a benchmark for consumer home mortgages, has climbed on evidence the economy is improving. It reached 3.74 percent on Feb. 28, compared with 2.57 percent on Nov. 3, the day of the Fed announcement. The yield was at 3.62 percent late yesterday.

Chipotle Mexican Grill Inc., which owns and operates quick- serve Mexican restaurants across the U.S., is seeing its costs for imported tomatoes, green peppers and tomatillos rise, along with beef and cheese. Still, the company has been reluctant to raise prices.

No Price Increase

“Commodity inflation has continued to push our food costs higher in 2011 already, and we expect continued inflationary pressure on many of our ingredients,” said John R. Hartung, chief financial officer at Denver-based Chipotle in a Feb. 10 earnings teleconference. “We plan to hold off on any menu- pricing decisions until later in the year, which will allow us to see how inflation plays out on a sustained basis and allow us to see how consumers react to price increases from other restaurants and grocers.”

Illinois Tool Works Inc., a Glenview, Illinois-based diversified manufacturer of engineered products and specialty systems, is one company that has been able to pass on higher costs to customers.

“Costs have continued to rise, even in the first quarter, for things like steel,” Ronald D. Kropp, chief financial officer, said in a conference call on Jan. 31. “We have put price increases in place. Our goal is to recover not just the cost, but also the margin.”

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.

                        Bloomberg Survey

================================================================
                               CPI     Core  Initial   Philly
                                        CPI   Claims      Fed
                              MOM%     MOM%   ,000’s    Index
================================================================

Date of Release              02/17    02/17    02/17    02/17
Observation Period            Jan.     Jan.   12-Feb     Feb.
----------------------------------------------------------------
Median                        0.3%     0.1%      400     21.0
Average                       0.3%     0.1%      403     21.0
High Forecast                 0.5%     0.2%      450     25.0
Low Forecast                  0.2%     0.0%      370     15.0
Number of Participants          79       77       47       55
Previous                      0.4%     0.1%      383     19.3
----------------------------------------------------------------
4CAST Ltd.                    0.3%     0.2%      405     22.5
ABN Amro Inc.                 0.3%     0.1%      390     21.0
Action Economics              0.4%     0.1%      405     19.0
Aletti Gestielle              0.5%     0.1%     ---      22.0
Ameriprise Financial          0.3%     0.1%     ---      20.0
Banesto                       ---      ---       400     20.8
Bank of Tokyo- Mitsubishi     0.3%     0.1%      410     21.9
Barclays Capital              0.3%     0.1%      400     22.0
Bayerische Landesbank         0.3%     0.1%     ---      ---
BBVA                          0.3%     0.1%      390     20.0
BMO Capital Markets           0.3%     0.0%      400     ---
BNP Paribas                   0.3%     0.1%      425     22.0
BofA Merrill Lynch Research   0.4%     0.1%      395     21.5
Briefing.com                  0.3%     0.1%      415     20.0
Capital Economics             0.4%     0.1%     ---      25.0
CIBC World Markets            0.3%     0.1%     ---      ---
Citi                          0.3%     0.1%      400     20.0
ClearView Economics           0.4%     0.1%     ---      22.0
Commerzbank AG                0.3%     0.1%      370     20.0
Credit Suisse                 0.3%     0.0%      450     ---
Daiwa Securities America      0.3%     0.1%     ---      ---
Danske Bank                   0.5%     0.1%     ---      21.9
DekaBank                      0.3%     0.1%     ---      22.0
Desjardins Group              0.2%     0.0%      450     17.0
Deutsche Bank Securities      0.2%     0.1%      390     22.0
Deutsche Postbank AG          0.3%     0.1%     ---      ---
DZ Bank                       0.3%     0.1%     ---      19.8
Exane                         0.4%     0.1%     ---      22.0
Fact & Opinion Economics      0.3%     0.2%      395     23.0
First Trust Advisors          0.4%     0.1%      415     23.6
Goldman, Sachs & Co.          0.4%     0.1%     ---      22.5
Helaba                        0.3%     0.1%      410     15.0
High Frequency Economics      0.4%     0.1%      400     ---
Horizon Investments           0.2%     0.1%     ---      23.0
HSBC Markets                  0.3%     0.1%      410     22.0
Hugh Johnson Advisors         0.4%     0.2%     ---      20.0
Ibersecurities                0.5%     ---      ---      19.7
IDEAglobal                    0.4%     0.2%      405     22.0
IHS Global Insight            0.4%     0.1%     ---      ---
Informa Global Markets        0.4%     0.1%     ---      ---
ING Financial Markets         0.5%     0.2%      395     ---
Insight Economics             0.3%     0.1%      410     20.0
Intesa-SanPaulo               0.4%     0.1%     ---      24.0
J.P. Morgan Chase             0.4%     0.1%      395     19.0
Janney Montgomery Scott       0.5%     0.1%     ---      ---
Jefferies & Co.               0.4%     0.1%     ---      18.0
Landesbank Berlin             0.2%     0.1%      380     20.0
Landesbank BW                 0.4%     0.1%      403     20.0
Maria Fiorini Ramirez         0.3%     0.1%      395     ---
MET Capital Advisors          0.5%     ---      ---      ---
MF Global                     0.3%     0.1%      420     20.0
Moody’s Analytics             0.3%     0.1%      415     20.0
Morgan Keegan & Co.           0.4%     0.2%     ---      ---
Morgan Stanley & Co.          0.2%     0.1%      395     ---
National Bank Financial       0.3%     0.1%     ---      ---
Natixis                       0.3%     0.1%     ---      ---
Nomura Securities Intl.       0.3%     0.1%     ---      20.0
Nord/LB                       0.4%     0.1%      400     22.0
OSK Group/DMG                 0.3%     0.1%     ---      ---
Pierpont Securities LLC       0.4%     0.1%      400     ---
PineBridge Investments        0.4%     0.1%      396     17.0
PNC Bank                      0.3%     0.1%     ---      ---
Raiffeisenbank International  0.3%     0.1%     ---      ---
Raymond James                 0.4%     0.1%      405     ---
RBC Capital Markets           0.4%     0.2%      400     21.0
RBS Securities Inc.           0.3%     0.1%      400     ---
Scotia Capital                0.3%     0.1%      410     22.0
Societe Generale              0.4%     0.2%      410     23.0
Standard Chartered            0.4%     0.1%      380     21.0
State Street Global Markets   0.3%     0.1%      410     19.6
Stone & McCarthy Research     0.4%     0.1%      385     23.7
TD Securities                 0.3%     0.1%      400     22.0
Thomson Reuters/IFR           0.3%     0.2%      392     20.0
UBS                           0.3%     0.1%      400     25.0
UniCredit Research            0.4%     0.1%     ---      ---
University of Maryland        0.3%     0.1%      415     20.7
Wells Fargo & Co.             0.4%     0.1%     ---      ---
WestLB AG                     0.4%     0.1%     ---      20.3
Westpac Banking Co.           0.3%     0.0%     ---      22.0
Wrightson ICAP                0.3%     0.1%      405     18.0
================================================================

To contact the reporter on this story: Bob Willis at bwillis@bloomberg.net

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

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