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Ahead of the Bell: US Consumer Prices

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November 20, 2013 06:28 AM EST | AP


WASHINGTON (AP) — The Labor Department reports Wednesday on changes in the consumer price index in October. The report will be released at 8:30 am EDT.

FLAT PRICES: Economists forecast that consumer prices were unchanged in October, according to a survey by FactSet. That would follow a 0.2 percent increase in September. Excluding volatile costs for food and energy, core prices are expected to have increased just 0.1 percent.

The October report is likely to reflect a steep drop in U.S. gasoline prices, which began fallen around Labor Day and reached two-year lows earlier this month. The average price of a gallon of gas was $3.21, according to AAA's Daily Fuel Gauge Report.

The drop in fuel prices may be offset slight increases in the cost of food, causing the index to be unchanged in October.

INFLATION CONTAINED: Inflation has been mild over the past year, outside of swings in energy prices. Overall prices rose just 1.2 percent in September compared with a year earlier, below the Federal Reserve's inflation target of 2 percent.

Core prices, meanwhile, have increased 1.7 percent in the past year.

The weak recovery has also minimized inflation. High unemployment and modest wage hikes have made it difficult for Americans to spend more and retailers to charge more.

FED IMPACT: Low inflation also gives the Fed more latitude to pursue its extraordinary stimulus to help drive economic growth. The Fed has been buying $85 billion a month in bonds to keep long-term interest rates low and encourage more borrowing and spending. It has also kept its key short-term interest rate near zero since late 2008.

Critics of the bond-buying program fear it will spark higher inflation in the future.

But a number of Fed officials have objected to slowing the program because inflation remains below 2 percent.

A small amount of inflation can be good for the economy, because it encourages consumers and businesses to spend and invest before prices rise further.

The Fed will release on Wednesday the minutes of its policymaker meeting that ended on Oct. 30. Economists expect the minutes to provide little insight into what steps the central bank will take next in terms of its bond buying and plans to keep the short-term interest rate it controls at nearly zero.