Consumer Price Index in U.S. Was Unchanged, Core Up 0.2%

The cost of living in the U.S. was little changed in June, a sign inflation may stay subdued as Federal Reserve officials have predicted.

No change in the consumer-price index followed a 0.3 percent drop in May, a Labor Department report showed today in Washington. The measure matched the median forecast of economists in a Bloomberg News survey. The so-called core measure that excludes volatile food and fuel costs rose 0.2 percent for a fourth month.

Companies from Supervalu Inc. (SVU) to Chrysler Group LLC are offering incentives to boost sales as weak job gains squeeze households, underscoring limited pricing power among businesses. With inflation less of a concern, Fed policy makers have room to take additional steps to ensure the world’s largest economy keeps expanding.

“Inflation is not a concern at this time,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who was among economists projecting no change in June consumer prices. “The central bank is more worried about growth. Policy makers have signaled they may lean toward more easing.”

The CPI was restrained by a third month of declines in energy prices. Airfares fell, used car prices were unchanged and the cost of shelter posted its smallest gain since September.

The forecast for consumer prices was based on the median of 81 economists in a Bloomberg survey. Economists’ estimates ranged from a gain of 0.2 percent to a decline of 0.6 percent.

Stock Fall

Stocks fell after Fed Chairman Ben S. Bernanke’s testimony to Congress disappointed investors anticipating a more definitive signal the central bank was prepared to provide more stimulus. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,350.97 at 10:08 a.m. in New York.

“The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said today in testimony for delivery to the Senate Banking Committee in Washington. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery,” he said, while refraining to discuss specific steps.

Overall consumer prices increased 1.7 percent in the 12 months ended in June, matching the year-over-year gain in May.

The core CPI climbed 2.2 percent from June 2011, in line with the median forecast and following a 2.3 percent gain in the 12 months to May.

Cheaper Fuel

Energy costs decreased 1.4 percent from a month earlier, reflecting drops in gasoline, fuel oil and electricity.

Households are getting some relief as lower fuel expenses contain the cost of living. The price of a gallon of regular gasoline at the pump averaged $3.49 in June, down 22 cents from May, according to AAA, the nation’s largest motoring organization. It has fallen further, reaching $3.40 on July 15.

Food costs climbed 0.2 percent, driven by gains in meats, fruits and vegetables. A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops and rural economies and threatening to drive food prices to record levels.

Today’s report showed prices of new vehicles rose 0.2 percent for a second month, while the cost of used cars was unchanged.

Auto Incentives

Automakers are offering incentives to attract customers. Chrysler Group LLC, the company controlled by Fiat SpA, said it will let buyers put off monthly payments for the first 90 days in a national promotion for all of its vehicles through the end of July. General Motors Co. (GM) will offer no-haggle pricing on 2012 Chevrolet vehicles plus a money-back guarantee on all new Chevys, running through Sept. 4.

The cost of medical care services climbed 0.7 percent, the biggest gain since 2010, today’s data showed.

Owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.1 percent for a second month. The cost of all shelter also rose 0.1 percent.

Average hourly earnings adjusted for changes in prices rose 0.2 percent in June after a 0.5 percent increase the prior month. They were up 0.3 percent over the past 12 months.

Businesses may hold the line on prices as slower payroll gains and unemployment at 8.2 percent sap household spending, which makes up 70 percent of the economy. Retail sales fell for a third month in June, the longest stretch of declines since 2008, figures showed yesterday.

Grocery Stores

Supervalu, the third-largest U.S. grocery chain, plans to accelerate price reductions. The Eden Prairie, Minnesota-based company said dollar-store chains have grabbed more consumers.

“Consumers’ price sensitivity has intensified given the continuing weak economic environment,” Craig Herkert, chief executive officer, told analysts on a July 11 call. “This has led many retailers to become even more aggressive on promotions and price investment, and to step up their marketing activity.”

Several Fed officials said more action could be warranted if growth slows, risks intensify or inflation seems likely to fall “persistently” below their goal, according to minutes of the June 19-20 meeting released last week. Central bank staff “continued to project that inflation would be subdued through 2014,” the text showed.

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

Producer prices rose 0.1 percent in June, the first gain in four months and a reflection of higher food expenses, while the import-price index declined 2.7 percent in June, the biggest plunge since December 2008, reports showed last week.

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

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

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