Consumer Prices in U.S. Decline by Most in Six Years on Fuel

17 Dec 2014 | Author: | No comments yet »

Consumer Prices in U.S. Decline by Most in Six Years on Fuel.

The cost of living in the U.S. fell in November by the most in almost six years, depressed by falling energy prices that signal inflation will stay below the Federal Reserve’s goal well into 2015. WASHINGTON (MarketWatch) — The sharp slide in gasoline prices gave another boost to U.S. households in November, as consumer prices fell by the biggest amount in six years and inflation-adjusted take-home pay rose just as the holiday season kicked into high gear. The consumer-price index dropped 0.3 percent, the most since December 2008, after being little changed the prior month, a Labor Department report showed today in Washington. Persistently low inflation allows Fed policy makers, scheduled to end a two-day meeting today, to exercise patience in raising the benchmark interest rates that they’ve held near zero since 2008 to spur growth and trim unemployment. The Fed is set to conclude its latest policy meeting Wednesday, and officials are closely monitoring inflation as they plot when to raise short-term interest rates.

Plunging fuel costs also will free up money that households can spend on other goods and services, bolstering the economic expansion. “There really aren’t any inflationary pressures, even outside of energy,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who is among the most accurate CPI forecasters over the past two years, according to data compiled by Bloomberg. “Time is still on the Fed’s side.” Stock-index futures held earlier gains after the report. Real hourly wages are up just 0.8% in the past 12 months, however, so Americans will have to see further gains to encourage them to spend more and boost the overall economy.

The average cost of regular gasoline dropped to $2.51 a gallon on Dec. 16, the cheapest since 2009 and down from this year’s high of $3.70 reached in April, according to AAA, the biggest U.S. auto group. The Fed’s preferred inflation measure, the Commerce Department’s price index for personal consumption expenditures, showed overall prices up 1.4% in October from a year earlier and core prices up 1.6%. Policy makers, at their meeting yesterday and today, will look past low inflation and drop a pledge to keep interest rates near zero for a “considerable time” as the Fed seeks an exit from the loosest monetary policy in its 100-year history, analysts said.

The Federal Open Market Committee will adopt a word such as “patient” to describe its approach to policy, according to 68 percent of economists surveyed by Bloomberg. That drew customers and helped companies including Costco Wholesale Corp., L Brands Inc. and Gap Inc. (GPS) to report November same-store sales that exceeded analysts’ estimates. The gap, the broadest measure of international trade because it includes income payments and government transfers, increased 1.9 percent to $100.3 billion from a revised $98.4 billion in the second quarter, according to Commerce Department figures.

That surge swamped a narrowing in the trade deficit and a larger surplus in primary income, which increased to $59 billion, the biggest since the last three months of 2011, from $54.8 billion.

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