WASHINGTON – The cost of living in the U.S. climbed more than forecast in December, led by higher fuel and food prices, while other goods and services showed the smallest annual increase on record.
The consumer-price index increased 0.5 percent, more than the 0.4 percent median estimate of economists surveyed by Bloomberg News, figures from the Labor Department showed Friday in Washington. The so-called core rate, which excludes volatile food and fuel costs, rose 0.1 percent, in line with the median projection.
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Core prices climbed 0.8 percent in 2010 as joblessness holding above 9 percent encouraged companies from Wal-Mart Stores Inc. to General Motors Co. to offer more promotions. Limited inflation and a labor market struggling to recover are allowing Federal Reserve policy makers to stick to their plan on additional monetary stimulus.
“Inflation remains benign,” Lindsey Piegza, an economist at FTN Financial in New York, said before the report. “Higher energy costs aren’t filtering through to the consumer. There’s no pressure on the Fed to remove its accommodative easing.”
Sales at U.S. retailers rose in December for a sixth consecutive month, capping the biggest one-year gain in more than a decade, Commerce Department figures also showed. Purchases increased 0.6 percent after rising 0.8 percent in November. Sales climbed 6.7 percent in 2010, the most since an 8.2 percent jump in 1999.
Stocks Lower
Stock-index futures maintained losses after the reports, with the March contract on the Standard & Poor’s 500 Index dropping 0.4 percent to 1,275.8 at 8:35 a.m. in New York. Treasuries fell, pushing up the yield on the 10-year note to 3.31 percent from 3.30 percent late Thursday.
The projected gain in consumer prices was based on the median of 82 economists in a Bloomberg survey. Estimates ranged from gains of 0.2 percent to 0.6 percent.
For all of 2010, consumer prices rose 1.5 percent, the smallest in two years. Economists projected a 1.3 percent rise, according to the survey median.
The core rate increase was the smallest since record- keeping began in 1958. In 2009, prices excluding food and fuel climbed 1.8 percent.
The Fed, concerned about the potential for deflation, has said it will buy an additional $600 billion of Treasuries through June to try to trim joblessness and avert an extended drop in prices.
Beige Book
“Most District reports cited comments by both retailers and manufacturers that costs were rising, but indicated that competitive pressures had led to only modest pass-through into final prices,” the Fed said Jan. 12 in its anecdotal Beige Book survey.
Energy costs increased 4.6 percent in December from a month earlier, and rose 7.7 percent for the year, Friday’s report showed. Food prices rose 0.1 percent last month, ending the year 1.5 percent higher.
Core inflation was restrained by new-car prices that were unchanged in December. New-car prices haven’t increased since September and fell 0.2 percent in 2010.
Owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.1 percent in December for a third month. Mounting foreclosures are reducing homeownership, driving up demand for rental housing.
The cost of medical care increased 0.2 percent.
Price Cuts
Wal-Mart, the world’s biggest discounter, was among retailers that offered promotions early and through the year to avoid profit-eroding price cuts late in the holiday season, industry data showed. Even so, discounts of as much as 65 percent could be found at some chains on the last shopping weekend before Christmas, while others offered 40 percent off.
Automakers also remain competitive in their pricing. Don Johnson, vice president of Detroit-based GM’s U.S. sales operations, said on a conference call on Jan. 4 the company’s year-to-date incentive spending through December was a bit little more than $3,200 per vehicle, albeit down about $650 compared to a year earlier.
While the economy is gathering speed, many households remain price-conscious. SuperValu Inc., the owner of Save-A-Lot and Cub Foods grocery stores, this week reduced its annual profit forecast after its promotional activities proved to be less effective than expected.
‘Signs of Improvement’
“While the macroeconomic environment is showing some signs of improvement, consumer behavior is decidedly mixed,” Craig Herkert, CEO, said on a conference call with analysts on Jan. 11. “Prices continue to be top of mind for consumers,” and “these trends are linked to unemployment,” he said.
Airlines are passing along some of their rising energy expenses. AMR Corp.’s American Airlines boosted round-trip fares $20 on most domestic routes, a move later matched by Delta Air Lines Inc., Farecompare.com said on Dec. 28. The fare comparison website also said that the previous day, United Continental Holdings Inc. added a $20 round-trip peak travel day surcharge to fares on future travel dates.
The CPI is the broadest of three monthly price gauges from the Labor Department, 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.
