Consumer prices steady as Fed weighs QE taper

The U.S. cost of living was unchanged in November, showing it will take time for inflation to approach the level desired by Federal Reserve officials, who begin their policy meeting today.

Cheaper gasoline, new cars and clothing held the consumer-price index in check after a 0.1% drop the prior month, according to data today from the Labor Department in Washington. The median forecast in a Bloomberg survey of economists called for a 0.1% gain. Prices rose 1.2% in the 12 months to November after a 1% year-over-year advance in October.

“Faster inflation is a no-show,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected no change in the CPI. “We’re still stuck in a below-2% inflation environment, below the Fed’s goal.”

Central bankers are debating the outlook for inflation and the economy as they consider reducing $85 billion of monthly bond purchases designed to support the four-year expansion. Underscoring limited cost pressures, American Eagle Outfitters Inc. is among retailers offering more discounts to attract shoppers this holiday season.

While limited inflation gives the Fed room to maintain unprecedented stimulus, data on retail sales, manufacturing, employment and housing indicate the economy is picking up heading into 2014.

Builder Optimism

Another report today showed builder optimism this month matched the highest level in eight years, indicating the industry is confident the increase in mortgage rates that slowed sales will prove temporary. The National Association of Home Builders/Wells Fargo gauge rose to 58, exceeding the highest projection in a Bloomberg survey, from 54 in November.

“The recent spike in mortgage rates has not deterred consumers as rates are still near historically low levels,” David Crowe, chief economist at the builders association, said in a statement. “We continue to look for a gradual improvement in the housing recovery in the year ahead.”

Stocks declined before Fed policy makers announce plans for their monthly bond-buying plan tomorrow. The Standard & Poor’s 500 Index fell 0.3% to 1,781 at the close in New York.

Thirty-four% of those surveyed by Bloomberg on Dec. 6 projected the Fed will start trimming bond purchases this month, while 26% forecast January, and 40% said March.

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Originally published on Resource Investor. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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