Consumer Prices in U.S. Dropped More Than Forecast in April

The cost of living in the U.S. fell in April for a second month, the first back-to-back declines in inflation since late 2008, as fuel prices retreated.

The consumer-price index decreased 0.4 percent, the biggest decrease since December 2008, after falling 0.2 percent in March, according to Labor Department figures released today in Washington. Economists surveyed by Bloomberg projected a 0.3 percent drop, according to the median estimate. The so-called core price measure, which excludes more volatile food and energy costs, increased 0.1 percent, less than projected.

Cheaper fuel costs are helping consumers overcome the burden of higher taxes and anemic wage gains by freeing up extra cash to spend elsewhere. Apart from receding energy expenses, subdued gains in the price of other goods and services give officials at the Federal Reserve latitude to adjust policy should they decide the economy needs more monetary stimulus.

“We’ve seen very aggressive declines in gasoline prices, and that has some pass-through into other goods and services,” Laura Rosner, a U.S. economist at BNP Paribas in New York, said before the report. “The Fed is watching the weakness in core inflation. It’s not their baseline assumption that the weakness will continue or worsen, but if it did, that would be a serious concern and would make them think about a response.”

Price-index estimates from the 81 economists surveyed ranged from a drop of 0.4 percent to a gain of 0.3 percent.

Claims Jump

More Americans than projected filed applications for unemployment benefits last week, which may raise concern the slowdown in economic growth is prompting an increase in firings, another Labor Department report showed today.

Jobless claims jumped by 32,000 to 360,000 in the week ended May 11, exceeding all forecasts in a Bloomberg survey of economists and the most since the end of March. A Labor Department spokesman said no state provided information explaining the surge in applications which was the biggest since the aftermath of superstorm Sandy in November.

Stock-index futures dropped after the reports. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.1 percent to 1,652.2 at 8:36 a.m. in New York. The S&P 500 closed at a record 1,658.78 yesterday.

Compared with a year earlier, consumer prices rose 1.1 percent in April, the smallest 12-month gain since November 2010, today’s report showed. They climbed 1.5 percent in the 12 months ended in March.

April’s month-to-month increase in core prices matched the gain in March and was smaller than the 0.2 percent increase that economists had projected.

Core prices rose 1.7 percent in the year ended in April, the least since June 2011, compared with 1.9 percent in the year ended in March, the Labor Department said.

Energy Prices

Energy prices decreased 4.3 percent in April from a month earlier. The cost of a gallon of regular gasoline averaged $3.55 in April compared with $3.69 in March, according to data from the nation’s largest motoring club, AAA. Prices have since ticked up, reaching $3.60 a gallon as of yesterday.

Americans may have used the savings at service stations to spending elsewhere. A report earlier this week showed retail sales unexpectedly advanced in April, an indication the effects on spending from a higher payroll tax will prove temporary.

Food costs increased 0.2 percent last month, according to today’s report.

“As we look at the upcoming quarter and the remainder of our fiscal 2013, we expect inflation to continue to moderate modestly from where it is,” Mark Shamber, chief financial officer of United Natural Foods Inc., said during a May 14 conference. Suppliers “don’t seem to be facing as much commodity pressure as they faced in the past,” he said.

Restrained Core

The core measure of prices was restrained be declines in the cost of clothing, air fares and medical services. The cost of hospital and related services dropped 0.6 percent, the most on record.

The restrained inflation reading boosted take-home pay in April. Price-adjusted average hourly earnings for all workers increased 0.5 percent last month, a separate report from the Labor Department showed today. They climbed 0.8 percent over the past 12 months, the most since October 2009.

Officials at the Fed are debating what slower inflation means for monetary policy. Federal Reserve Bank of Philadelphia President Charles Plosser said May 14 that recent tepid price increases don’t yet warrant a response.

“Should inflation expectations begin to fall, we might need to take action to defend our inflation goal, but at this point, I do not see inflation or deflation as a serious threat in the near term,” Plosser said.

Fed Debate

Central bankers including St. Louis Fed President James Bullard said last month persistent disinflation may require the Fed to provide stimulus beyond the $85 billion in monthly bond purchases it has already undertaken.

The Fed’s preferred price measure, issued by the Commerce Department and tied to consumer spending, rose 1 percent in the 12 months ended in March. The nation’s central bank aims for a 2 percent inflation pace.

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.

A Labor Department report yesterday showed prices paid by producers dropped 0.7 percent in April, the biggest decline in three years, as fuel costs retreated. Import prices in the U.S., reported May 14, slipped 0.5 percent in April, also as oil became less pricey.

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