July Consumer Prices Unchanged as U.S. Pricing Power Wanes

Photographer: Victor J. Blue/Bloomberg

An employee carries sports clothes inside Dick's Sporting Goods Inc. store in Paramus, New Jersey. Close

An employee carries sports clothes inside Dick's Sporting Goods Inc. store in Paramus, New Jersey.

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Photographer: Victor J. Blue/Bloomberg

An employee carries sports clothes inside Dick's Sporting Goods Inc. store in Paramus, New Jersey.

The cost of living in the U.S. was little changed in July for a second month, showing companies lack pricing power.

The unexpected reading in the consumer-price index capped a 1.4 percent gain over the past 12 months, the smallest year-to- year increase since November 2010, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for an increase of 0.2 percent. The core index, which excludes volatile food and fuel costs, rose less than forecast.

Companies may find it difficult to charge more while joblessness hovers above 8 percent. Tempered inflation makes it possible for Federal Reserve policy makers to take additional steps if needed to revive the economic expansion when they meet next month.

“The fact that the economy was so weak in the first half of the year means there’s probably less pricing power,” said Omair Sharif, U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “It’s going to be tough to push prices through to the consumer who’s already very weak and shown an appetite for discount shopping,” said Sharif, who correctly forecast the increase in core prices.

“If you’re the Fed, inflation is the least of your concerns right now,” he said.

Manufacturing in the New York area unexpectedly contracted in August for the first time since October, indicating factories are cutting back amid the global economic slowdown, another report today showed.

Manufacturing Contracts

The Federal Reserve Bank of New York’s general economic index fell to minus 5.9 from 7.4 in July. The median estimate in a Bloomberg survey of economists was 7.0. Readings less than zero signal contraction in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

Treasuries securities trimmed earlier losses after the reports, putting the yield on the benchmark 10-year note at 1.76 percent compared with 1.74 percent late yesterday. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.2 percent to 1,398.8 at 8:50 a.m. in New York.

Declining prices for a broad-range of goods and services, including hotel rates, airline fares and new and used cars helped offset rising costs for medical care and rents, the report showed.

Economists’ estimates in the Bloomberg survey ranged from unchanged to a gain of 0.4 percent. Economists forecast a 0.2 percent gain in the core index, according to the survey median.

Core Prices

The core CPI climbed 0.1 percent in July and was up 2.1 percent over the past 12 months, the smallest year-to-year increase since October 2011.

Energy costs decreased 0.3 percent from a month earlier, while food prices rose 0.1 percent.

A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops and rural economies and could lead to higher consumer costs at the supermarket in the coming months.

Paychecks are failing to keep up with even limited inflation. Hourly earnings adjusted for inflation were little changed in July after a 0.3 percent increase the prior month, and were up 0.2 percent over the past 12 months.

Pricing Strategy

Dick’s Sporting Goods Inc. (DKS) is among companies having mixed success in boosting prices, getting customers to pay more for some items and having to pull back on others.

“Some of them worked out fine and the customer accepted them and some other ones didn’t,” Edward Stack, chairman and chief executive officer of the Coraopolis, Pennsylvania-based retailer, said on an Aug. 14 earnings call.

Sustained gains in demand are needed to give merchants more pricing power. Retail sales rose in July for the first time in four months, the Commerce Department reported yesterday.

Merchants including Gap Inc. (GPS), Home Depot Inc. and TJX Cos. are reporting improved sales as households strengthen their balance sheets and look beyond the global economic slowdown.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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