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.
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. The median forecast of 84 economists surveyed by Bloomberg called for a 0.1 percent fall. Costs rose 1.3 percent over the past year, the least since February. Excluding volatile food and fuel, the so- called core measure rose at a slower pace than in October.
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. 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. The contract on the Standard & Poor’s 500 Index maturing in March climbed 0.4 percent to 1,973.6 at 8:34 a.m. in New York.
Estimates for consumer prices in the Bloomberg survey ranged from little change to a drop of 0.3 percent.
Core prices rose 0.1 percent, matching the median forecast of economists surveyed by Bloomberg. That followed a 0.2 percent advance the previous month.
Gains in rents, medical care and airline fares were almost completely offset by the biggest drop in clothing costs in 16 years and the largest fall in prices for used cars and trucks since September 2012.
Today’s report showed the core CPI measure increased 1.7 percent from November 2013, following a 1.8 percent rise in the prior 12-month period.
Energy costs decreased 3.8 percent from a month earlier, led by a 6.6 percent plunge in gasoline, the biggest since December 2008.
Households’ fuel bills continue to fall. 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.
Lower prices at the pump mean Americans can spend more elsewhere. Retail sales rose 0.7 percent in November, the most in eight months, as consumers snapped up electronics, clothing and furniture, Commerce Department figures showed. Industry data also indicate demand for vehicles remains robust.
The cost of living decline helped boost paychecks. Hourly earnings adjusted for inflation rose 0.6 percent, after a 0.1 percent increase the prior month, a separate report from the Labor Department showed. They were up 0.8 percent over the past 12 months, the most since February.
The Fed’s preferred price gauge, linked to consumer spending, rose 1.4 percent in October compared with the same month last year and hasn’t been above the central bank’s 2 percent goal since March 2012.
Fed officials weighing when to raise rates are likely to focus on a jobless rate that’s fast approaching their goal for full employment, even as declining oil prices hold inflation below their target, economists said.
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.
Shoppers are benefiting from lower prices as retailers began offering holiday deals earlier than ever this year. That drew customers and helped companies including Costco Wholesale Corp., L Brands Inc. and Gap Inc. to report November same-store sales that exceeded analysts’ estimates.
Businesses also experimented with spreading their deals over a longer period. Express Inc. began offering 50 percent off everything starting Nov. 25 through noon Nov. 28, and Target Corp. rolled out pre-Black Friday deals of up to 60 percent off on some items.
Delta Air Lines Inc. is among companies benefiting from both the drop in fuel costs and an improving economy.
“We continue to price to demand,” Edward Bastian, president of Atlanta-based Delta, said in a Dec. 11 teleconference with investors. “Demand is very solid.”
That means that the carrier will “be able to secure as much if not all of that fuel savings directly to the bottom line for 2015.”
The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices fell more than forecast in November, led by the biggest drop in energy costs in more than a year, while the import cost gauge declined for the fifth consecutive month.
Another report today showed the current-account deficit widened in the third quarter as the shortfall on secondary income climbed to a record. 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.
The median forecast of economists in a Bloomberg survey called for the deficit to shrink to $97.5 billion from a previously reported $98.5 billion.
The deficit on secondary income, which includes government and private transfers, jumped to $34.9 billion from $22 billion in the second quarter, which was depressed by fines and penalties paid to the U.S. government by foreign institutions.
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. The improvement reflected gains in income from American investments in foreign stocks.