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Consumer Prices in U.S. Probably Rose, Confidence Strengthened

The cost of living in the U.S. probably rose in August for a second month, easing concern that the cooling economy will cause a protracted drop in prices, economists said before a report today.

The consumer-price index increased 0.3 percent for a second month, according to the median forecast of 77 economists surveyed by Bloomberg News. Separate figures may show consumer confidence climbed in early September.

While demand is strong enough to avert an extended and broad-based decline in prices, companies such as Wal-Mart Stores Inc. and Kroger Co. are offering discounted merchandise to draw shoppers. A limited risk of inflation is one reason economists project the Federal Reserve will hold interest rates close to zero until late next year.

“The consumer remains focused on getting discounts, which will keep a lid on companies’ ability to raise prices,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “There’s just enough demand and inventory levels are tight enough to keep prices from falling. The Fed has placed concerns about inflation and deflation on the back burner.”

The Labor Department will issue the consumer price figures at 8:30 a.m. today in Washington. Estimates of economists surveyed ranged from gains of 0.1 percent to 0.4 percent.

The Thomson Reuters/University of Michigan preliminary September index of consumer sentiment, due at 9:55 a.m., rose to 70 this month from 68.9 in August, according to the Bloomberg survey median. The gauge averaged 89 in the five years leading up to the recession that began December 2007. The projected level signals household spending, the biggest part of the economy, will be slow to strengthen.

Stock Prices

Some of the gain in optimism this month may be traced to higher stock prices. The Standard & Poor’s 500 Index has increased 7.2 percent since the end of August. Retailers’ shares have outpaced the broader market, with the S&P Supercomposite Retailing Index rising 10.6 percent this month through yesterday.

The report on consumer prices may show a gauge excluding volatile food and fuel costs, the so-called core rate, increased 0.1 percent for a second month, economists projected. From August 2009, the measure likely rose 1 percent following a 0.9 percent year-over-year gain in July.

The economy is slowing without lapsing into another recession while inflation remains subdued, according to the Beige Book survey by 12 regional Fed banks, which reflected information on or before Aug. 30.

“Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials,” policy makers said in the report, released Sept. 8.

Obama’s Ratings

President Barack Obama’s approval ratings have slipped as economic growth slowed this year and employment stagnated. Fifty-six percent of voters said they disapproved of his handling of the economy, according to a poll by Quinnipiac University taken Aug. 31 to Sept. 7.

The lack of price pressures gives central bankers scope to leave the benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008. A Bloomberg survey taken Sept. 1 to Sept. 9 showed economists pushed back the timing of the first rate increase to the fourth quarter of 2011, from the prior three months.

Kroger, the largest U.S. grocery-store chain, reported second-quarter profit that exceeded analysts’ estimates. Sales by stores open for at least five quarters jumped 2.7 percent as the Cincinnati-based chain used promotions to compete with Wal- Mart, the world’s biggest retailer.

Economy ‘Challenging’

“The competitive environment remains challenging,” David Dillon, Kroger’s chief executive officer, said on a conference call Sept. 14. “During the quarter, we saw significant and aggressive promotional pricing at several competitors.”

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.

The report may show rents, the biggest component in CPI, continued to increase. Mounting foreclosures are reducing homeownership, driving up demand for rental housing.

A Labor Department report yesterday showed the producer- price index increased 0.4 percent, the most in five months and twice the gain in July. The cost of goods imported into the U.S., reported earlier this week, rose 0.6 percent from the prior month.