Consumer Prices in U.S. Little Changed as Fuel Costs Drop

The cost of living in the U.S. was little changed in January for a second month as a drop in energy costs made up for gains in other goods and services.

The unchanged reading in the consumer-price index compared with a 0.1 percent gain projected by the median estimate of economists surveyed by Bloomberg, figures from the Labor Department showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, increased by the most in more than a year, pushed up by gains in clothing, hotel rates and airline fares.

Fuel costs have climbed this month after an increase in the payroll tax also took a bite out of take-home pay, which may prompt households to rein in purchases and cause companies like Ruth’s Hospitality Group Inc. to hold the line on prices. Joblessness at 7.9 percent may also restrain wage gains, providing a further check on inflation that will give the Federal Reserve room to maintain monetary stimulus.

“The big story from the consumer standpoint is the rise in gasoline prices in the last four weeks, which will start to strain wallets at a time when there’s also a problem with tax refunds going out more slowly and the payroll tax hitting them,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who correctly projected prices would be unchanged.

Consumer-price index estimates in the Bloomberg survey of the 84 economists ranged from a drop of 0.1 percent to a gain of 0.4 percent.

Jobless Claims

More Americans filed applications for unemployment benefits last week, returning to levels seen prior to the holiday period and indicating little change in the pace of firings.

Jobless claims increased by 20,000 to 362,000 in the week ended Feb. 16, the Labor Department reported today in Washington. The median forecast of 48 economists surveyed by Bloomberg called for an increase to 355,000. The number of applications in three states and the District of Columbia were estimated because of the holiday-shortened week, a Labor Department spokesman said as the data was released.

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing next month fell 0.1 percent to 1,505.8 at 8:53 a.m. in New York.

12-Month Gain

Compared with a year earlier, consumer prices rose 1.6 percent in January, the smallest 12-month gain since July, today’s report showed. They climbed 1.7 percent in the 12 months ended December.

The 0.3 percent increase in the core reading was the biggest since May 2011 and followed a 0.1 percent gain in December. Economists projected a 0.2 percent pick-up. Core prices rose 1.9 percent for the year through January, the same as in December.

Energy costs decreased 1.7 percent from a month earlier, a third consecutive decrease, today’s report showed.

That will probably reverse this month as fuel expenses head higher. The average cost of a gallon of regular gasoline reached $3.78 a gallon as of yesterday, compared with an average $3.32 in January, according to data from the nation’s largest motoring club, AAA.

Food costs were also little changed in January, the first month without an increase in almost a year.

The core measure was pushed up by a 0.8 percent jump in clothing costs, the biggest gain since August 2011. Hotel rates and other lodging away from home climbed 1.2 percent, while the cost of airline fares increased 1.1 percent.

Real Earnings

The restrained headline inflation readings helped boost take-home pay through January. Price-adjusted average hourly earnings for all workers increased 0.2 percent last month, a separate report from the Labor Department showed today. They climbed 0.6 percent over the past 12 months, the biggest year-to-year gain since November 2010.

Central bank policy makers have said they foresee inflation proceeding at a pace that will allow them to focus on reducing unemployment.

“Nearly all participants” in the Federal Open Market Committee’s Jan. 29-30 meeting on monetary policy “anticipated that inflation over the medium-term would run at or below the Committee’s 2 percent objective,” according to minutes released yesterday. “There was little evidence of wage or cost pressures outside of isolated sectors, and measures of inflation expectations remained stable.”

Fed’s View

During that meeting, Fed officials opted to keep buying $45 billion a month of Treasuries and $40 billion in mortgage-debt without setting a limit on the duration or total size of the purchases. They also affirmed a pledge to hold their target interest rate near zero “at least as long” as joblessness remained above 6.5 percent and inflation was expected to be no more than 2.5 percent.

The Fed’s preferred price measure, issued by the Commerce Department and tied to consumer spending, rose 1.3 percent in the 12 months ended December.

Slow economic growth is making businesses like Ruth’s Hospitality Group, which operates the Ruth’s Chris Steak House chain, reluctant to raise prices.

“While we believe we have additional pricing power, we expect to be thoughtful and prudent with respect to future increases,” Michael O’Donnell, president and chief executive officer of the Heathrow, Florida-based company, said during a Feb. 15 earnings call. “With the current economic backdrop, it is still our strategy to focus on growing sales through traffic gains and maintaining our value orientation.”

Other Measures

A Labor Department report yesterday showed prices paid to producers climbed 0.2 percent in January on rising food costs. Import prices in the U.S., reported Feb. 13, also advanced 0.6 percent last month, propped up by more expensive fuel.

The CPI is the broadest of the three monthly price measures from the Labor Department because it includes both 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.

(Updates with economist comment in fourth paragraph.)
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