Consumer Prices in U.S. Little Changed as Inflation Recedes

The cost of living was little changed in December, capping the third-smallest annual gain in the past decade, indicating U.S. inflation remains at bay.

The unchanged reading in the consumer-price index matched the median estimate of 83 economists surveyed by Bloomberg and followed a 0.3 percent drop the prior month, Labor Department data showed today in Washington. Costs rose 1.7 percent in 2012, down from a 3 percent increase in 2011.

Price increases will probably remain restrained as retailers like Target Corp. use discounts to attract customers and budget battles in Washington hurt confidence. Federal Reserve policymakers are likely to maintain unprecedented easing measures while inflation holds below their target level and absent further progress on reducing joblessness.

“There’s nothing to worry about on the inflation front” so the Fed will continue easing measures, said Bricklin Dwyer, an economist at BNP Paribas in New York, who correctly projected the December price readings. “We’re seeing weaker domestic demand playing into weaker price pressures.”

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in March declined 0.2 percent to 1,461.7 at 8:50 a.m. in New York as the World Bank trimmed its forecasts for global growth.

Bloomberg survey estimates for the consumer-price index ranged from a drop of 0.2 percent to an increase of 0.3 percent.

Decade Average

Consumer prices rose 2.4 percent on average over the past decade.

The core index, which excludes volatile food and energy costs, climbed 0.1 percent for the fifth time in the last six months. For 2012, core prices rose 1.9 percent compared with a 2.2 percent advance in 2011. Last year’s gain matched the average increase over the past 10 years.

The Fed’s preferred price measure, which is tied to consumer spending patterns, rose 1.4 percent in the 12 months to November, according to data from the Commerce Department.

Central bankers in December adopted a more flexible approach to their interest-rate outlook, saying borrowing costs will stay low “at least as long” as unemployment remains above 6.5 percent and if the Fed predicts inflation of no more than 2.5 percent one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8 percent in December and November.

Inflation Outlook

“For the next few years, it’s unlikely that we’re going to see inflation really push up above that 2 percent level,” that is the Fed’s longer-term goal, Daniel Silver, an economist at JPMorgan Chase & Co. in New York, said before the report.

Fed Chairman Ben S. Bernanke said earlier this week tried to assuage investors that the central bank will remain vigilant against any flare-up in prices.

“There seems to be a pretty strong presumption that we should be aggressive in monetary policy,” he said at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. “We will be paying very close attention to make sure that inflation stays well-contained as it is today.”

The core measure last month was restrained by declines in the cost of used cars, clothing and medicinal drugs.

Tepid global growth and falling energy costs, including cheaper gasoline, are mitigating inflation risks. Energy costs decreased 1.2 percent in December. Gasoline fell 2.3 percent.

Gasoline Prices

Fuel costs so far this year have held near a 2012 low reached in December. A gallon of regular gasoline at the pump dropped to a $3.30 average on Jan. 14, close to the $3.22 reached on Dec. 19 that was the lowest in a year, according to AAA, the biggest U.S. auto group.

Low fuel prices may help Americans’ buying power even as higher taxes restrain their discretionary spending. The fiscal pact passed by Congress on Jan. 1 allowed the payroll tax used to pay for Social Security benefits return to the 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

A separate report from the Labor Department today showed wages adjusted for inflation climbed 0.3 percent on average in December after increasing 0.6 percent the prior month. For all of 2012, they were up 0.3 percent.

Retail sales rose more than forecast in December as holiday shoppers were little influenced by Washington’s budget turmoil. Purchases climbed 0.5 percent, the biggest gain in three months, after a revised 0.4 percent increase in November that was larger than previously reported, according to Commerce Department data released yesterday.

Extending Discounts

Target, the second-largest U.S. discount retailer, plans to build on holiday spending gains by extending discount policies that attracted shoppers last month. The Minneapolis-based company is pledging to match the prices year-round charged by the e-commerce sites of Inc., Wal-Mart Stores Inc., Best Buy Co. and Toys R Us Inc. in a bid to boost sales.

The new policy, which takes effect immediately, will combine Target’s holiday-season price policies into one year-round and easy-to-use system, the company said in a Jan. 8 statement. Target’s stores will also match the prices of goods found on its own website, it said.

James Buettgen, president and chief executive officer of Ruby Tuesday Inc., said the Maryville, Tennessee-based restaurant chain is focused on keeping “the right balance” between offering discounts and using other marketing tools as the U.S. economy continues to recover.

“To totally walk away from price incentives like coupons in such a competitive environment, in such a challenging consumer environment, would be a foolish decision,” Buettgen said on a Jan. 9 earnings call.

Other Measures

The CPI is the broadest of 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.

Wholesale prices in the U.S. dropped for a third month in December as food costs fell by the most since May 2011, the Labor Department reported yesterday. For all of 2012, prices paid by companies climbed 1.3 percent, the smallest advance since a drop in 2008 and compared with an average 3.4 percent gain over the prior decade.

Import prices also declined in December, a Labor Department report showed Jan. 11. For all of 2012, import prices fell 1.5 percent, the first annual drop since they retreated 10.1 percent in 2008.

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