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The cost of living in the U.S. unexpectedly fell in March, underscoring Federal Reserve forecasts that inflation will be contained in coming months.
The consumer price index decreased 0.1 percent compared with a 0.1 percent gain projected by the median forecast of economists surveyed by Bloomberg News, according to figures from the Labor Department issued today in Washington. In the 12 months ended March, prices fell 0.4 percent, the first decline since 1955.
Companies from General Motors Corp. to Macy’s Inc. are using incentives and promotions to draw customers as Americans contend with the biggest job losses in the post World War II era and shrinking wealth. Some Fed policy makers are concerned the price deceleration will give way to deflation, or a broad, prolonged drop that hurts economic growth.
“Inflation cannot become a problem when consumer spending is still in a substantial rate of decline,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “The economic downturn will keep price pressures down. Deflation is probably the greater worry at this stage.”
Empire Index
A separate report today showed that manufacturing in the New York region contracted less than forecast in April. The Federal Reserve Bank of New York’s general economic index rose to minus 14.7, from minus 38.2 the prior month, when the so- called Empire State index reached its lowest level since data began in 2001.
Treasuries, which had advanced earlier in the day, remained higher after the figures, with benchmark 10-year note yields slipping to 2.78 percent at 8:35 a.m. in New York from 2.79 percent late yesterday. Futures on the Standard & Poor’s 500 Stock Index lost 0.4 percent to 837.20.
The projected increase reflected the median estimate of 75 economists surveyed. Estimates ranged from a drop of 0.3 percent to a gain of 0.5 percent.
Costs excluding food and energy, so-called core prices, climbed 0.2 percent for a third month, more than the projected 0.1 percent increase anticipated by economists surveyed.
The core rate climbed 1.8 percent from March 2008, matching February’s year-over-year increase.
Food, Fuel
Declining food and fuel costs brought overall prices lower. Energy costs dropped 3 percent, led by decreases in fuel oil and gasoline. Food expenses dropped 0.1 percent on lower costs for dairy and meat products.
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.
Over 60 percent of the gain in core prices was caused by an 11 percent surge in the cost of tobacco and smoking products, the report said. Drug and tobacco makers often try to pass along rising raw material costs early in the year, economists said.
The other gainer was new vehicles, which cost 0.6 percent more. Air fares, clothing and hotel rates were among the categories that dropped in price.
Some economists argue disinflation could lead to outright deflation, which erodes profits, makes debts harder to repay and delays purchases by consumers and companies. Others caution that in the longer term, the unprecedented fiscal stimulus and the Fed’s policy of buying more assets and pumping money into the financial system will reignite inflation.
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