Consumer Prices in U.S. Rise as Forecast on Gain in Fuel

Consumer Prices in U.S. Rise as Forecast on Gain in Fuel Costs
A driver prepares to refuel his vehicle at a Hess Corp. gas station in the Brooklyn borough of New York, U.S., on Monday, Oct. 28, 2013. Photographer: Craig Warga/Bloomberg

The cost of living in the U.S. rose as projected in September as fuel charges climbed, capping the smallest year-to-year gain in five months.

The consumer price index increased 0.2 percent, matching the median forecast of 86 economists surveyed by Bloomberg, after rising 0.1 percent the prior month, Labor Department data showed today in Washington. Stripping out volatile food and fuel, the so-called core measure climbed 0.1 percent for a second month, less than projected.

With inflation running below the Federal Reserve’s goal, the central bank has more flexibility to maintain its $85 billion-a-month bond buying program. Companies such as McDonald’s Corp., that are trying to pass on higher commodity costs, risk spurning value-conscious customers.

“There really isn’t any inflation pressure in the U.S,” said Julia Coronado, chief economist for North America at BNP Paribas in New York and the top-ranked CPI forecaster over the past two years, according to data compiled by Bloomberg. “That means the Fed can focus more on the employment side of its mandate and is not constrained in any way by inflation developments.”

Hiring Slows

Another report showed companies added fewer workers than projected in October, indicating the job market lost momentum amid budget strife in Washington. Employment increased by 130,000, the smallest gain in six months, following a revised 145,000 advance in September that was weaker than initially estimated, according to the ADP Research Institute in Roseland, New Jersey. The median forecast of 39 economists surveyed by Bloomberg called for an advance of 150,000 jobs.

Stock-index futures held earlier gains after the reports as investors awaited the outcome of the Fed’s policy meeting. The contract on the Standard & Poor’s 500 index maturing in December rose 0.2 percent to 1,771 at 8:42 a.m. in New York.

Economists’ estimates in the Bloomberg survey ranged from a decrease of 0.1 percent to a 0.3 percent advance.

Economists forecast a 0.2 percent increase in the core rate, according to the survey median.

Overall consumer prices increased 1.2 percent in the 12 months through September, the smallest gain since April, after a 1.5 percent year-over-year advance the prior month. The core measure rose 1.7 percent from September 2012, following a 1.8 percent increase in the prior 12-month period.

COLA Estimate

Today’s consumer-price report also suggested the estimated monthly payment for retired workers receiving Social Security benefits will rise 1.5 percent in 2014. It’s up to the Social Security Administration to issue the official figures based on today’s data.

Energy costs increased 0.8 percent from a month earlier, today’s figures showed. Lower fuel prices are giving households some relief this month. The average cost of a gallon of regular gasoline was $3.28 on Oct. 29, the lowest level this year, according to AAA, the biggest U.S. auto club.

Today’s report showed food costs were unchanged in September from the prior month. Automobile prices increased 0.2 percent.

Hourly earnings adjusted for inflation were unchanged last month after a 0.2 percent increase in August. Earnings were up 0.9 percent during the past year.

Pricing Power

As commodities costs rise, some companies are taking steps to regain pricing power sapped during the recession. McDonald’s, the world’s largest restaurant chain, is introducing products onto its Dollar Menu that cost $2 versus $1.

While abandoning the low-cost menu is not “part of our affordability strategy, particularly not at a time like this,” adding products at double the price “is one of the ways that we can maintain the Dollar Menu in the face of rising commodities and labor pressures,” Don Thompson, McDonald’s chief executive officer said on an Oct. 21 conference call.

The Big Mac hamburger seller’s commodity costs in the U.S. will increase as much as 2 percent in 2013, while the company has raised prices 2.6 percent this year.

Fed officials will monitor inflationary pressures as they weigh reducing their unprecedented stimulus program. Fed districts mostly reported little change in prices of both finished goods and inputs, according to the central bank’s Beige Book report released Oct. 10.

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.

A report yesterday showed prices paid to producers unexpectedly declined in September as food costs retreated. The producer-price index dropped 0.1 percent after a 0.3 percent gain the prior month.

The cost of goods imported into the U.S. rose in September, reflecting higher fuel charges. The import-price gauge climbed 0.2 percent for a second month, the Labor Department said Oct. 23.


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