The cost of living in the US was unchanged in February, underscoring the Federal Reserve's forecast that inflation will remain low as the economy recovers.
The consumer-price index didn't increase for the first time since a decrease in March 2009, and followed a 0.2 per cent gain in January, Labor Department figures showed today in Washington. Excluding food and energy costs, the so-called core index increased 0.1 per cent, in line with forecasts, capping the smallest year-over-year gain since 2004.
Retailers such as Wal-Mart Stores Inc. continue to focus on cutting prices to bolster sales as customers face almost 10 per cent unemployment and foreclosures mount. The lack of inflation is one reason Fed policy makers this week repeated a pledge to keep the benchmark interest rate near zero in coming months in order to sustain economic growth.
"Inflation is certainly no imminent threat to the US economy," said David Resler, chief economist at Nomura Securities International Inc. in New York, who correctly anticipated prices would be unchanged. "It ties in with the Fed's statement. We see the Fed on hold through this year."
Less Than Forecast
Economists forecast the consumer-price index would rise 0.1 per cent in February from a month earlier, according to the median of 79 projections in a Bloomberg News survey. Estimates ranged from a decrease of 0.2 per cent to a 0.3 per cent gain.
The core index was forecast to rise 0.1 per cent, according to the survey median.
In the 12 months ended February, prices climbed 2.1 per cent, down from a 2.6 per cent year-over-year gain the prior month. Excluding food and fuel, prices rose 1.3 per cent increase over the past 12 months, the smallest gain since February 2004.
Another Labor Department report today showed fewer Americans filed first-time claims for jobless benefits last week for third consecutive time, a sign the labor market is gradually improving along with the economy.
Fewer Claims
First-time jobless applications dropped by 5000 to 457,000 in the week ended March 13, in line with forecasts. The number of people receiving unemployment insurance increased, and those getting extended benefits also rose.
Fed policy makers this week said the main interest rate will remain near zero for an "extended period," and said "inflation is likely to be subdued for some time." Low levels of capacity use, high unemployment, tame inflation and stable expectations on the likely trajectory of prices were among the "economic conditions" the central bankers cited for the lack of urgency to boost the target on overnight loans between banks.
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 per cent to 2 per cent. That gauge, which is typically lower than the CPI, was up 1.4 per cent in the 12 months through January.
Compared with a month earlier, energy costs dropped 0.5 per cent in February, led by declines in fuel oil and gasoline.
Gasoline Prices
The cost of a gallon of regular gasoline at the pump averaged $US2.65 last month, down from $US2.71 in January, according to data from AAA, the nation's largest motoring group. The fuel's price has rebounded this month, averaging $US2.76 in the first 16 days of March.
Food costs, which account for about 15 per cent of the CPI, increased 0.1 per cent last month as gains in meats and poultry were almost offset by declines in fruits and vegetables and beverages.
Some restraints on the cost of living are not likely to reverse soon. Rents, which make up almost 40 per cent of the core CPI, were little changed last month. Owners-equivalent rent, one of the categories used to track rental prices, declined 0.1 per cent in January.
Increasing costs for medical care, were almost offset by falling costs for clothing and airfares.
Inflation Measures
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 the cost of imported goods fell 0.3 per cent, while wholesale prices decreased 0.6 per cent. Both fell more than anticipated.
Almost 60 per cent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
Wal-Mart, the world's largest retailer, is among companies using prices to drum up demand. The Bentonville, Arkansas-based company said it is increasing marketing efforts to highlight its price rollbacks.
"Our focus has been on driving prices down," Bill Simon, chief operating officer at Wal-Mart, said at a consumer conference in New York on March 10. "We see the higher the rollbacks go in our store, the better comp sales are. So, we're pressing that forward."
