Consumer Prices in U.S. Decline for First Time in Six Months

Photographer: Sam Hodgson/Bloomberg

A shopper carries a Gap Inc. bag while walking through the Westfield North County Mall in Escondido, California, U.S., on Sunday, Nov. 17, 2013. Close

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Photographer: Sam Hodgson/Bloomberg

A shopper carries a Gap Inc. bag while walking through the Westfield North County Mall in Escondido, California, U.S., on Sunday, Nov. 17, 2013.

The cost of living in the U.S. declined in October for the first time in six months, showing inflation remains below the Federal Reserve’s goal.

The consumer-price index dropped 0.1 percent, reflecting cheaper energy, clothing and new cars, after a 0.2 percent gain the prior month, a Labor Department report showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for no change. Excluding volatile food and fuel, the so-called core measure rose 0.1 percent.

Companies from Wal-Mart Stores Inc. (WMT) to Macy’s Inc. (M) are holding the line on prices to attract more customers heading into the holiday-shopping period. Limited inflation also gives Fed officials the flexibility to maintain their $85 billion-a-month bond purchase program to stimulate the economy.

“Inflation is a distant concern at this time,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “It gives the Fed room for its continued quantitative-easing efforts.”

Estimates for the consumer-price index ranged from a drop of 0.2 percent to a gain of 0.2 percent, according to the Bloomberg survey. Economists projected the core gauge would rise 0.1 percent.

Stock-index futures rose after the inflation data and a separate report showing retail sales increased more than forecast in October. The contract on the Standard & Poor’s 500 Index expiring in December increased 0.2 percent to 1,788.2 at 8:51 a.m. in New York.

Retail Sales

Retail purchases climbed 0.4 percent, the most in three months, after no change in September, Commerce Department figures showed today in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 0.1 percent October advance.

Overall consumer prices increased 1 percent in the 12 months ended in October, after a 1.2 percent year-over-year gain the prior month. The core CPI climbed 1.7 percent from October 2012, matching the gain in the prior 12-month period.

Energy costs decreased 1.7 percent from a month earlier, the most in six months. The decline reflected cheaper gasoline, natural gas and fuel oil.

Households are getting some extra cash to spend on other goods and services as fuel expenses cool. The average cost of a gallon of regular gasoline so far this month is $3.21, down 58 cents from this year’s peak of $3.79 in February, according to AAA, the biggest U.S. motoring group.

Food Prices

Food costs rose 0.1 percent, driven by meats, poultry, fish, eggs and fruits and vegetables, today’s report showed.

New-automobile prices decreased 0.1 percent, the first decline since February. The cost of medical care services fell, while drug prices increased.

Owners-equivalent rent, one of the categories designed to track rental prices, increased 0.2 percent. Apparel prices declined 0.5 percent for a second straight month.

Hourly earnings adjusted for inflation rose 0.2 percent, after declining 0.1 percent the prior month. They were up 1.3 percent over the past year.

Store chains are holding prices in check as they compete for customers. Wal-Mart, the world’s largest retailer, plans to keep its shelves well-stocked with the most popular toys and guaranteeing low prices all season in the store.

Wal-Mart

“We have aggressive plans in toys this holiday season to be the retail destination on assortment and price and we will adjust as necessary to deliver for the customer,” Bill Simon, the Bentonville, Arkansas-based chain’s U.S. chief executive officer, said on a Nov. 14 conference call.

Cincinnati-based Macy’s has “consciously gone after” a strategy of offering low opening price points on women’s clothing this season, which is helping to woo shoppers, Chief Financial Officer Karen Hoguet said on a Nov. 13 call with analysts.

Federal Reserve Bank of New York President William C. Dudley is among central bank officials who agree price pressures are contained. He sees “nothing to suggest inflation is going to be a problem in the near-term,” Dudley said at an event on Nov. 18.

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.

Wholesale prices are projected to have fallen 0.2 percent in October, the second consecutive decline, according to the median forecast in a Bloomberg survey ahead of Labor Department data tomorrow. October import prices dropped 0.7 percent after rising 0.1 percent the prior month, the Labor Department reported on Nov. 15.

To contact the reporter on this story: Shobhana Chandra at schandra1@bloomberg.net; Victoria Stilwell in Washington at vstilwell1@bloomberg.net

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

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