Consumer Prices in U.S. Unchanged


The cost of living in the U.S. was unchanged in February, underscoring the Federal Reserve’s forecast that inflation will remain low as the economy recovers.

The consumer-price index didn’t increase for the first time since a decrease in March 2009, and followed a 0.2 percent gain in January, Labor Department figures showed. Excluding food and energy costs, the so-called core index increased 0.1 percent, in line with forecasts, capping the smallest year-over-year gain since 2004.

Retailers such as Wal-Mart Stores Inc. continue to focus on cutting prices to bolster sales as customers face almost 10 percent unemployment and foreclosures mount. The lack of inflation is one reason Fed policy makers this week repeated a pledge to keep the benchmark interest rate near zero in coming months in order to sustain economic growth.

In the 12 months ended February, prices climbed 2.1 percent, down from a 2.6 percent year-over-year gain the prior month. Excluding food and fuel, prices rose 1.3 percent increase over the past 12 months, the smallest gain since February 2004.

Another Labor Department report today showed fewer Americans filed first-time claims for jobless benefits last week for third consecutive time, a sign the labor market is gradually improving along with the economy.

Fed policy makers this week said the main interest rate will remain near zero for an extended period,” and said inflation is likely to be subdued for some time.” Low levels of capacity use, high unemployment, tame inflation and stable expectations on the likely trajectory of prices were among the economic conditions” the central bankers cited for the lack of urgency to boost the target on overnight loans between banks.

The Fed’s long-term forecast for its preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.7 percent to 2 percent. That gauge, which is typically lower than the CPI, was up 1.4 percent in the 12 months through January.

Compared with a month earlier, energy costs dropped 0.5 percent in February, led by declines in fuel oil and gasoline.

The cost of a gallon of regular gasoline at the pump averaged $2.65 last month, down from $2.71 in January, according to data from AAA, the nation’s largest motoring group. The fuel’s price has rebounded this month, averaging $2.76 in the first 16 days of March.

Food costs, which account for about 15 percent of the CPI, increased 0.1 percent last month as gains in meats and poultry were almost offset by declines in fruits and vegetables and beverages.

Some restraints on the cost of living are not likely to reverse soon. Rents, which make up almost 40 percent of the core CPI, were little changed last month. Owners-equivalent rent, one of the categories used to track rental prices, declined 0.1 percent in January.

Increasing costs for medical care, were almost offset by falling costs for clothing and airfares.

The CPI is the broadest of the three monthly price gauges from the Labor Department because it includes goods and services. Reports this week showed the cost of imported goods fell 0.3 percent, while wholesale prices decreased 0.6 percent. Both fell more than anticipated.

Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

 


TradingEconomics.com, Bloomberg
3/18/2010 11:21:27 AM