Retailers Lead Surprise Drop in U.S. Consumer Prices
May 19, 2010 The cost of living in the U.S. unexpectedly dropped in April for the first time in more than a year, reinforcing forecasts that the Federal Reserve will keep interest rates near zero for much of 2010.
The 0.1 percent fall in the consumer price index was the first decrease since March 2009, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12- month gain in four decades.
Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. The European debt crisis, which has pushed up the value of the dollar and may restrain global growth, will probably further depress prices at a time when inflation is already running below Fed policy makers’ projections.
“There simply isn’t any kind of price pressure of any consequence,” said David Resler, chief economist at Nomura Securities International Inc. in New York, who accurately forecast the decline. “This puts the Fed firmly in place for the foreseeable future.”
The dollar dropped from a four-year high against the euro on speculation European leaders will take steps to support the common currency. Stocks fell for a second day, with the Standard and Poor’s 500 Index dropping 0.5 percent to close at 1,115.05 in New York.
Rise Projected
Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 79 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.2 percent to a gain of 0.4 percent. Costs excluding food and energy were projected to rise 0.1 percent.
In the 12 months ended in April, prices rose 2.2 percent following a 2.3 percent year-over-year gain the prior month. Economists had forecast a 2.4 percent rise in the 12 months to April, according to the survey median.
The core rate rose 0.9 percent from April 2009, the smallest increase since January 1966, after a 1.1 percent year- over-year advance the prior month.
“We do not have any inflation pressure,” Ward McCarthy, chief financial economist at Jefferies & Co. in New York, said today in an interview on Bloomberg Radio with Tom Keene. “On the international level, there is tremendous price competition.”
Debt Crisis
The debt crisis in Greece that has weighed on the value of the euro may keep damping U.S. inflation in coming months, according to economists such as Jay Bryson at Wells Fargo Securities LLC in Charlotte, North Carolina. U.S. exports to Europe may slow at the same time a stronger dollar holds down the cost of imported goods.
Compared with a month earlier, energy costs dropped. Gasoline prices fell 2.4 percent. Food prices, which account for about 15 percent of the CPI, rose 0.2 percent, reflecting higher meat costs, today’s report showed.
Declining prices for clothing and household furnishings helped offset increases in airline fares, recreation and medical care, leading to the unchanged reading in core prices.
The housing slump is also cooling inflation. Owners- equivalent rent, one of the categories designed to track rental prices, was unchanged last month. Compared with April 2009, the gauge dropped 0.2 percent, deepening the first 12-month slide since records began in 1982.
Foreclosures, Delinquencies
The share of mortgages in foreclosure climbed to a record 4.63 percent in the first quarter, the Mortgage Bankers Association said in a report today. The combined share of foreclosures and delinquencies was 14 percent, or about one in every seven U.S. mortgages, as job losses caused homebuyers to fall behind on monthly payments.
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, typically lower than the CPI, was up 1.3 percent in the 12 months through March.
Price cuts through the recession helped Wal-Mart, the world’s largest retailer, boost sales last year while competitors reported declines. This year, the retailer has reduced prices on gas grills, lawn mowers and Procter & Gamble Co.’s Crest toothpaste and Bounty paper towels in so-called rollbacks aimed at bolstering sales growth.
The Bentonville, Arkansas-based company yesterday said it plans additional U.S. price reductions on items including cereal, ice cream and laundry detergent in coming months. Earnings in the first quarter beat the average estimate of 21 analysts surveyed as sales gains in Mexico, Canada and China made up for declines at U.S. stores.
The CPI is the broadest of three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
- Published on Bloomberg News by Timothy R. Homan - May 19, 2010
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