Consumer Prices in U.S. Increased 0.3% in October (Update2)

Nov. 18 (Bloomberg) -- The cost of living in the U.S. rose more than forecast in October as Americans paid more for fuel, while so-called core prices held at a pace that supports the Federal Reserve’s forecast for tame inflation. The 0.3 percent rise in the consumer-price index followed a 0.2 percent increase in September, figures from the Labor Department showed today in Washington. Excluding food and energy costs, the core index rose 0.2 percent for a second month. Unemployment at a 26-year high of 10.2 percent and wages that were down 5.2 percent in September from a year earlier are giving companies such as Wal-Mart Stores Inc. little room to raise prices. Fed Chairman Ben S. Bernanke said Nov. 16 that the economic “headwinds” will limit the recovery, allowing interest rates to stay low for an “extended period.” “I don’t see anything in the report that suggests there’s any real inflation flare-up,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “The Fed is comfortably on hold.” Economists forecast the consumer price index would rise 0.2 percent, according to the median of 78 projections in a Bloomberg News survey. Estimates ranged from a decline of 0.2 percent to a rise of 0.5 percent. The core index was forecast to rise 0.1 percent, according to the Bloomberg survey. Housing Starts Fall U.S. stock-index futures erased gains after the Commerce Department said housing starts unexpectedly plunged 11 percent last month to the lowest level since April. Futures on the Standard & Poor’s 500 Index were down 0.1 percent to 1,106.0 at 9:02 a.m. after rising as much as 0.3 percent. Treasuries remained lower after the consumer price report and before the U.S. announces tomorrow the amounts of 2-, 5- and 7-year notes it will sell next week. The 10-year note yield rose two basis points to 3.34 percent at 8:35 a.m. in New York. Compared with a year earlier, consumer prices were down 0.2 percent. Core prices rose 1.7 percent from October 2008 after a 1.5 percent year-over-year gain in September. Energy costs increased 1.5 percent in October, led by fuel oil and gasoline. The year-over-year declines in the consumer price index are getting smaller as crude oil prices increase from an almost five-year low in December 2008. Crude Oil The U.S. on Nov. 10 raised its forecast for crude oil prices this year and next on speculation that demand will rise as the global economy improves. West Texas Intermediate oil, the U.S. benchmark, will average $62 a barrel in 2009, up from last month’s forecast of $59.90. Crude oil will average $78.13 in 2010, according to the monthly Short-Term Energy Outlook report from the Energy Department’s Energy Information Administration. Crude oil traded on the New York Mercantile Exchange averaged $75.82 a barrel in October, compared with $69.47 in September. Prices have continued to increase this month, averaging $78.69. Gasoline prices in October averaged $2.56 a gallon in October, compared with $2.55 a month earlier, according to AAA. Food prices, which account for 14.6 percent of the CPI, increased 0.1 percent in October, reflecting higher dairy costs. Prices for meats and fruits and vegetables declined during the month. Walmart Cost Cuts Walmart, the world’s largest retailer, is experiencing “ongoing deflation across our businesses,” Michael T. Durke, the Bentonville, Arkansas-based company’s chief executive officer said Nov. 12. Walmart accelerated efforts to cut costs in the third quarter as falling food prices and the worst U.S. unemployment rate in a quarter century muted revenue. Owners-equivalent rent, one of the categories used to track rental prices, was unchanged. In September, the measure dropped 0.1 percent, the first decline since 1992. Costs of medical care increased 0.2 percent in October and are up 3.5 percent from the same month last year. Airline fares rose 1.7 percent last month. The CPI is the broadest of the three monthly price gauges from the Labor Department because it includes goods and services. A report yesterday showed wholesale prices rose 0.3 percent. The cost of imported goods rose 0.7 percent, the government said last week. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. The Fed earlier this month repeated that it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. “Inflation seems likely to remain subdued for some time,” Bernanke said in a Nov. 16 speech to the Economic Club of New York. The weak labor market and reduced bank lending He also said “significant economic challenges remain.” To contact the reporter on this story: Courtney Schlisserman in Washington cshlisserma@bloomberg.net