Consumer Prices in U.S. Rose at a Slower Pace in October

Photographer: David Paul Morris/Bloomberg

An employee attaches price tags to displays at a Best Buy Co. store in Emeryville, California, on March 27, 2012. Close

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Photographer: David Paul Morris/Bloomberg

An employee attaches price tags to displays at a Best Buy Co. store in Emeryville, California, on March 27, 2012.

The cost of living rose in October at the slowest pace in three months, a sign U.S. inflation is in check.

The 0.1 percent increase in the consumer-price index followed a 0.6 percent gain the prior month, the Labor Department reported today in Washington. The median estimate of 83 economists surveyed by Bloomberg called for a 0.1 percent rise. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.2 percent, more than projected, reflected rising rents and clothing costs.

Macy’s Inc. (M) is among retailers planning holiday discounts, while Amazon.com Inc. (AMZN) and Wal-Mart Stores Inc. (WMT) are battling to offer the best online prices on toys, indicating companies have little leeway to charge more. The inflation outlook is in sync with the Federal Reserve’s view and gives policy makers room to concentrate on boosting growth.

“Inflation in the U.S. is very subdued,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who correctly forecast the gain in prices. “This is allowing the Fed to strive toward supporting job growth and reducing unemployment.”

Bloomberg survey estimates for the consumer-price index ranged from a drop of 0.1 percent to an increase of 0.3 percent.

In the 12 months ended in October, consumer prices rose 2.2 percent, the report showed.

Core Prices

The core CPI reading showed the biggest increase since June and compared with a 0.1 percent median forecast of economists surveyed. Core prices were up 2 percent for the year through October, the same as in the 12 months through September.

A separate report from the Labor department showed more Americans than forecast submitted claims for unemployment insurance last week as superstorm Sandy wreaked havoc on the job market.

Applications for jobless benefits surged by 78,000 to 439,000 in the week ended Nov. 10, the most since April 2011. Several states said the increase was due to the storm that hit the Northeastern part of the country in late October, a Labor Department spokesman said as the data were released to the press.

Also today, manufacturing in the New York region contracted for a fourth straight month in November as Sandy knocked out electrical power and limited activity, figures from the Federal Reserve Bank of New York shoed. Its general economic index was minus 5.2 this month compared with minus 6.2 in October. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Shares Fall

Stock-index futures dropped after the reports, erasing earlier gains, on the larger-than-expected increase in jobless claims. The contract on the Standard & Poor’s 500 Index maturing in December declined 0.2 percent to 1,350.7 at 8:44 a.m. in New York.

The CPI report showed energy costs fell 0.2 percent in October from a month earlier. A gallon of regular fuel at the pump has averaged $3.46 so far in November, down 41 cents from a recent high of $3.87 on Sept. 13, according to AAA, the biggest U.S. auto group.

Restrained fuel costs may help Americans’ recover some of the buying power they’ve lost this year as salaries stagnated. Hourly wages adjusted for inflation decreased 0.2 percent on average in October after a 0.3 percent drop the prior month, a separate Labor Department report today showed. Over the past 12 months, real hourly pay was down 0.7 percent.

Food Costs

The consumer-price report showed food costs advanced 0.2 percent.

The core measure was propelled by a 0.4 percent increase in the index for rents, the biggest gain since June 2008. A measure designed to track the rental value of owner-occupied houses rose 0.2 percent. Clothing costs increased 0.7 percent, hotel fares climbed 0.5 percent, and airline fares climbed 2.4 percent.

In contrast, medical care expenses were little changed, the first time since July 2010 they didn’t increase. The index for used cars and trucks dropped 0.9 percent, the fourth consecutive decrease.

Macy’s, the second-largest U.S. department-store chain, posted third-quarter profit that topped analysts’ estimates while its forecast for the end of the year signaled it may use heavy discounts to draw holiday shoppers.

Discounting Toys

Amazon.com has cheaper online prices for toys than Wal- Mart, Target Corp. and other major chains as parents begin shopping for the holidays, according to a Bloomberg Industries analysis. In a comparison of 125 randomly selected toys conducted Nov. 8, Amazon had lower prices than Wal-Mart on 44 percent of the items, while Wal-Mart had the advantage on 13 percent.

Wal-Mart, the world’s largest retailer, today forecast profit this year that trailed some analysts’ estimates after difficult economic conditions slowed sales gains at established U.S. stores in the third quarter.

“Current macroeconomic conditions continue to pressure our customers,” Chief Financial Officer Charles Holley said in a statement. “The holiday season is predicted to be very competitive.”

Limited price pressures give policy makers room to maintain a third round of unprecedented bond-buying aimed at spurring the expansion and reducing unemployment. Longer-term inflation expectations have “remained stable,” the Federal Open Market Committee said in an Oct. 24 statement after its meeting.

Fed’s View

“The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective,” the Fed officials said.

Minutes of their last meeting, released yesterday, showed a number of officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist.

The minutes also showed policy makers had a detailed discussion about whether the central bank should link its policy of holding the main interest rate at zero to numerical measurements of unemployment and inflation , an approach that participants “generally favored” over the current approach of specifying a calendar date through which rates will remain low.

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.

Producer prices, released yesterday, unexpectedly fell in October for the first time in five months as energy and vehicle costs dropped. The 0.2 percent decline followed a 1.1 percent increase the prior month.

Import prices unexpectedly climbed in October, led by increases in energy expenses that have since been reversed. The 0.5 percent advance followed a 1.1 percent gain in September and a 1.2 percent rise in August, figures 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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