BT : Living costs up for first time in four months

Business Times - 14 Aug 2010

LATEST US DATA
Living costs up for first time in four months

CPI increased 0.3% in July, highest in a year

THE cost of living in the US climbed last month for the first time in four months, pointing to a stabilisation that may ease concern a slowdown in growth will spur deflation.

The consumer-price index increased 0.3 per cent, the most in a year and exceeding the 0.2 per cent gain projected by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed yesterday. A gauge excluding volatile food and fuel costs, the so-called core rate, increased 0.1 per cent, as projected.

The report showed rents, the biggest component in CPI, increased for a second month, and the cost of clothing, used cars and tobacco climbed, diminishing the risk of a protracted drop in prices that would hurt the economy. Economists say the lack of inflation gives Federal Reserve policy makers scope to leave the benchmark interest rate near zero into 2011 to help invigorate the economy.

'Inflation should be tame,' Jonathan Basile, an economist at Credit Suisse in New York, said before the report. 'An upside risk to core inflation is the recent modest acceleration in shelter costs.' A report from the Commerce Department showed sales at U.S. retailers rose less than forecast in July, indicating the lack of jobs is prompting Americans to rein in spending. Purchases increased 0.4 per cent, led by autos and gasoline. Excluding auto dealers and service stations, demand dropped 0.1 per cent.

The forecast gain in consumer prices was based on the median estimate of 77 economists in a Bloomberg survey. Projections ranged from no change to a gain of 0.4 per cent.

In the 12 months ended in July, prices rose 1.2 per cent following a 1.1 per cent year-over-year gain the prior month. Economists had forecast a 1.2 per cent rise in the 12 months to July, according to the survey median.

The core rate rose 0.9 per cent from July 2009, matching the smallest year-over-year gain since 1966.

Fed policy makers this week left the overnight interbank lending rate target in a range of zero to 0.25 per cent, where it's been since December 2008. High unemployment, low inflation and stable price expectations 'are likely to warrant exceptionally low levels of the federal funds rate for an extended period,' the U.S. central bank said, repeating language from every policy meeting since March 2009.

The CPI is the broadest of three monthly price gauges from Labor, because it includes goods and services. Almost 60 per cent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

The cost of medical care decreased 0.1 per cent in June, the biggest drop since 1975. Bloomberg

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