U.S. Consumer Prices Probably Fell for First Time in Two Years

The cost of living in the U.S. probably fell in May for the first time in two years as fuel prices retreated, buttressing Federal Reserve projections that cheaper commodities will help reduce inflation, economists said before a report today.

The consumer-price index decreased 0.2 percent after no change in April, according to the median forecast of 78 economists surveyed by Bloomberg News. The so-called core measure, which excludes volatile food and fuel costs, may have climbed 0.2 percent for a third month. Another report may show jobless claims were little changed last week.

Cheaper energy costs may provide some relief for Americans against a backdrop of moderating job and wage gains that have slowed consumer spending. With inflation cooling, Fed policy makers also have more flexibility to take further action to bolster U.S. economic growth.

“Subdued is the right word for the inflation outlook,” said Steven Blitz, chief economist at ITG Investment Research Inc. in New York. “Assuming that what we currently see in terms of wages and employment growth continues, that will be a lid on prices. The Fed recognizes that the risk to inflation right now is lower rather than higher.”

The Labor Department will release the data at 8:30 a.m. in Washington. Economists’ estimates ranged from a decrease of 0.6 percent to an increase of 0.2 percent.

Consumer prices advanced 1.8 percent over the past year, the smallest gain since January 2011, according to the survey median. The core index is projected to increase 2.2 percent from May 2011.

Fed’s Bernanke

“Substantial resource slack in U.S. labor and product markets should continue to restrain inflationary pressures,” Fed Chairman Ben S. Bernanke told Congress’s Joint Economic Committee last week. With a “subdued” inflation outlook, high unemployment and “strains in global financial markets,” the central bank anticipates it will keep its benchmark lending rate near zero though late 2014, he said.

Fed policy makers, who projected the run-up in energy costs would subside, aim for 2 percent inflation as part of their dual mandate of stable prices and maximum employment. Their preferred price gauge, issued by the Commerce Department and tied to consumer spending, rose 1.8 percent in the 12 months ended in April, the smallest gain in more than a year.

Falling energy costs are helping hold down inflation. The cost of a gallon of regular gasoline at the pump fell to $3.54 through June 12 from a 10-month high of $3.94 in early April, figures from automobile club AAA show.

Fed Vice Chairman Janet Yellen said last week she sees more scope for easing, while San Francisco Fed President John Williams, a voting member of the FOMC this year, called on policy makers to stand ready to act should the recovery falter.

Jobs, Wages

Labor Department figures showed June 1 that employers in May added the fewest workers in a year, further restraining consumers’ buying power. Average hourly earnings rose 1.7 percent in May from the same month last year, the smallest increase since December 2010.

First-time applications for unemployment benefits dropped by 2,000 to 375,000 last week, according to the median projection in a Bloomberg survey before the Labor Department’s data at 8:30 a.m. With claims averaging 373,500 this year, the estimated figure shows scant improvement in the job market.

Inflation expectations have “definitely come down,” David Tehle, chief financial officer of Dollar General Corp. (DG), said during a June 4 earnings call. The Goodlettsville, Tennessee- based dollar-store chain anticipates 0.5 percent inflation for the full year, compared with 2 percent in the final three months of 2011, Tehle said.

Commodity Prices

Dollar General expects no apparel inflation this year and sees broad slowing in commodity prices, Chief Executive Officer Rick Dreiling said during the call.

A Labor Department report yesterday showed prices paid to producers dropped 1 percent in May, the most since July 2009. Import prices in the U.S., reported June 12, also decreased 1 percent.

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

                         Bloomberg Table

================================================================
                               CPI     Core     Core  Initial
                                        CPI      CPI   Claims
                              MOM%     MOM%     YOY%   ,000’s
================================================================

Date of Release              06/14    06/14    06/14    06/14
Observation Period             May      May      May    9-Jun
----------------------------------------------------------------
Median                       -0.2%     0.2%     2.2%      375
Average                      -0.2%     0.2%     2.2%      375
High Forecast                 0.2%     0.2%     2.3%      385
Low Forecast                 -0.6%    -0.1%     2.1%      370
Number of Participants          78       78       33       49
Previous                      0.0%     0.2%     2.3%      377
----------------------------------------------------------------
4CAST                        -0.2%     0.2%     ---       379
ABN Amro                     -0.2%     0.2%     2.2%      372
Action Economics              0.0%     0.2%     2.2%      375
Ameriprise Financial         -0.1%     0.1%     2.2%      375
Banca Aletti                 -0.3%     0.2%     ---       380
Bantleon Bank AG             -0.2%     0.2%     ---      ---
Barclays                     -0.3%     0.2%     2.3%      375
BBVA                         -0.2%     0.2%     ---       375
BMO Capital Markets          -0.2%     0.2%     2.3%      375
BNP Paribas                  -0.3%     0.2%     2.3%      380
BofA Merrill Lynch           -0.2%     0.2%     ---       380
Briefing.com                 -0.3%     0.1%     ---       375
Capital Economics            -0.2%     0.2%     2.3%     ---
CIBC World Markets           -0.2%     0.2%     2.3%     ---
Citi                         -0.2%     0.2%     2.2%      370
ClearView Economics           0.1%     0.2%     ---      ---
Commerzbank AG               -0.2%     0.2%     ---      ---
Credit Agricole CIB          -0.2%     0.2%     ---      ---
Credit Suisse                -0.3%     0.2%     2.3%      385
Daiwa Securities America     -0.1%     0.2%     ---      ---
DekaBank                     -0.2%     0.2%     2.2%     ---
Desjardins Group             -0.3%     0.2%     2.2%      375
Deutsche Bank Securities     -0.2%     0.2%     ---       375
Deutsche Postbank AG         -0.1%     0.2%     2.2%     ---
DZ Bank                       0.0%     0.2%     ---      ---
Exane                        -0.3%     0.2%     ---      ---
Fact & Opinion Economics      0.0%     0.1%     ---       375
First Trust Advisors         -0.2%     0.2%     ---       374
FTN Financial                -0.2%     0.2%     2.3%     ---
Goldman, Sachs & Co.         -0.3%     0.2%     ---      ---
Helaba                       -0.1%     0.2%     2.2%      375
High Frequency Economics     -0.2%     0.2%     ---       375
HSBC Markets                 -0.3%     0.2%     2.2%      375
Hugh Johnson Advisors        -0.6%    -0.1%     ---       380
IDEAglobal                   -0.3%     0.1%     2.2%      375
IHS Global Insight           -0.3%     0.2%     ---       375
Informa Global Markets       -0.2%     0.1%     ---       375
ING Financial Markets        -0.3%     0.1%     2.1%      375
Insight Economics            -0.2%     0.2%     ---       370
Intesa Sanpaulo               ---      0.2%     ---      ---
J.P. Morgan Chase            -0.3%     0.2%     ---       380
Janney Montgomery Scott      -0.3%     0.1%     2.2%     ---
Jefferies & Co.              -0.3%     0.2%     ---       380
John Hancock Financial        0.1%     0.1%     ---       372
Landesbank Berlin             0.0%     0.1%     ---       375
Landesbank BW                -0.1%     0.1%     ---      ---
Maria Fiorini Ramirez        -0.2%     0.2%     ---       375
Market Securities            -0.3%     0.2%     ---      ---
MET Capital Advisors         -0.1%     ---      ---      ---
Mizuho Securities            -0.3%     0.0%     ---       370
Moody’s Analytics            -0.1%     0.2%     ---       380
Morgan Stanley & Co.         -0.2%     0.2%     ---      ---
National Bank Financial      -0.2%     0.1%     2.2%     ---
Natixis                      -0.1%     0.2%     2.2%     ---
Nomura Securities            -0.3%     0.1%     ---      ---
Nord/LB                      -0.1%     0.2%     2.3%      380
OSK Group/DMG                -0.2%     0.2%     2.2%     ---
O’Sullivan                   -0.3%     0.2%     ---       377
Parthenon Group              -0.2%     0.2%     ---      ---
Pierpont Securities          -0.2%     0.2%     ---       373
PineBridge Investments       -0.1%     0.2%     ---       370
PNC Bank                     -0.3%     0.1%     ---      ---
Raiffeisenbank International -0.3%     0.2%     2.3%     ---
Raymond James                 0.2%     0.1%     2.2%     ---
RBC Capital Markets          -0.3%     0.2%     2.3%      380
RBS Securities               -0.3%     0.2%     ---       375
Scotiabank                   -0.3%     0.2%     2.2%      380
Societe Generale             -0.3%     0.1%     2.2%      370
Southern Polytechnic State    ---      ---      ---       374
Standard Chartered           -0.2%     0.2%     2.3%      370
Stone & McCarthy Research    -0.2%     0.2%     ---       378
TD Securities                -0.1%     0.2%     2.2%      370
UBS                          -0.3%     0.2%     ---       375
UniCredit Research           -0.2%     0.1%     ---      ---
Union Investment             -0.1%     0.2%     2.3%     ---
University of Maryland       -0.2%     0.2%     ---       375
Wells Fargo & Co.            -0.2%     0.2%     2.2%     ---
WestLB AG                    -0.2%     0.2%     2.3%     ---
Westpac Banking Co.          -0.3%     0.1%     ---       370
Wrightson ICAP               -0.2%     0.2%     ---       377
================================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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