The Free Press, Mankato, MN

February 21, 2013

Consumer prices little changed


Bloomberg News

WASHINGTON — The cost of living 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 Thursday 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 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, Conn., 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.

Compared with a year earlier, consumer prices rose 1.6 percent in January, the smallest 12-month gain since July, Thursday'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, Thursday'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 Wednesday, 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.

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 Thursday. 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 Wednesday. "There was little evidence of wage or cost pressures outside of isolated sectors, and measures of inflation expectations remained stable."

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, Fla.-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."

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.

— With assistance from Chris Middleton in Washington.