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Business Title: U.S. Consumer Prices Increase Less Than Forecast in Sign Inflation Subdued Feb. 19 (Bloomberg) -- The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is generating little inflation. The consumer-price index increased 0.2 percent for a fifth straight month, led by higher fuel costs, Labor Department figures showed today in Washington. Excluding energy and food, the so-called core index unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter. Retailers such as Wal-Mart Stores Inc. have reduced prices to lure customers at a time when most employers are reluctant to hire. Restrained inflation will allow Federal Reserve policy makers to keep the benchmark interest rate close to zero to help support the recovery. “The broader picture remains one of subdued inflation, and this gives the Fed ample reason to stay on the sidelines until at least very late in the year,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, who forecast no change in the core index. Economists projected the consumer-price index would rise 0.3 percent in January from a month earlier, according to the median of 78 estimates in a Bloomberg News survey. Estimates ranged from no change to a gain of 0.6 percent. The core index, which fell for the first time since December 1982, was forecast to rise 0.1 percent, according to the Bloomberg survey. Treasuries, Stocks Stocks trimmed losses, with the Standard & Poor’s 500 Index declining 0.1 percent to 1,105.78 at 10:55 a.m. in New York, after falling as much as 0.5 percent. Federal Reserve Bank of New York President William Dudley said the world’s largest economy is recovering with stronger- than-expected growth and fewer job losses. “We currently expect that the economy will keep expanding but at a somewhat slower growth rate than during the second half of 2009,” Dudley said today in a speech in San Juan, Puerto Rico. “With modest growth, we expect price pressures to remain well contained.” Dudley also said after his speech that the Fed’s increase yesterday of the discount rate was a “small technical change” that doesn’t signal a shift in monetary policy. The Fed’s Board of Governors raised the rate for direct loans to banks by a quarter-point to 0.75 percent, effective today. Compared with January 2009, the CPI rose 2.6 percent after climbing 2.7 percent the previous month. The year-over-year gains in the consumer price index have been getting bigger as crude oil prices increase from an almost five-year low in December 2008. Higher Energy Costs Energy costs jumped 2.8 percent in January, led by higher prices for fuel oil and gasoline, today’s report showed. The cost of crude oil on the New York Mercantile Exchange averaged $78.40 last month, up from $74.60 in December. Gasoline prices increased 4.4 percent, the most since August. Food costs, which account for about 15 percent of the CPI, increased 0.2 percent in January, reflecting higher prices for dairy products, meat and fruits and vegetables. Shelter costs that include lodging away from home and rental properties fell 0.5 percent. Owners-equivalent rent, one of the categories used to track rental prices, fell 0.1 percent last month after no change. New-car prices fell 0.5 percent in January, the most since August, and apparel costs dropped 0.1 percent. Medical-care costs rose 0.5 percent in January, the biggest gain in two years. Airline Fares Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. Airline fares fell 2.5 percent in January, the most since February 2009. 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 1.4 percent gains in both the cost of imported goods and wholesale prices in January. Both increases were more than anticipated. Even with higher production and material costs, U.S. companies are reluctant to pass on the expenses to consumers. Wal-Mart, the world’s largest retailer, reported fourth-quarter sales yesterday that trailed its projection after cutting grocery and electronic prices. The Bentonville, Arkansas-based company reduced the cost of laptop computers, along with turkeys and cranberry sauce for holiday meals, to attract shoppers living paycheck to paycheck. “We see the influence of the paycheck cycle as pronounced now as it’s been in the past,” Chief Financial Officer Tom Schoewe said on a call with reporters.
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