By Timothy R. Homan Aug. 14 (Bloomberg) -- The cost of living in the U.S. was unchanged in July, and dropped by the most since 1950 from a year ago, as the recession sapped companies’ pricing power. The flat reading matched the median forecast of economists surveyed by Bloomberg News and followed a 0.7 percent increase in June, data from the Labor Department showed today in Washington. Excluding food and energy costs, the so-called core index rose 0.1 percent, also as anticipated. Today’s figures indicate no sign that the Federal Reserve’s record $1 trillion of injections into the banking system have passed through to faster inflation. Retailers including Nordstrom Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. have used discounts to lure consumers on tight budgets in the aftermath of job losses and home-price declines. “I don’t really see inflation as being much of a threat over the next several months because there’s just too much slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Treasuries headed higher after the report, sending benchmark 10-year note yields down to 3.58 percent at 9:04 a.m. in New York from 3.60 percent late yesterday. Futures on the Standard & Poor’s 500 Stock Index were down 0.2 percent at 1,011.50. Economists’ Forecasts Economists forecast consumer prices would be unchanged, according to the median of 76 projections in the Bloomberg survey. Estimates ranged from a decline of 0.3 percent to a gain of 0.3 percent. Compared with a year earlier, prices were down 2.1 percent, the biggest 12-month decrease since 1950. The core index was projected to rise 0.1 percent, according to the survey median. The measure increased 1.5 percent from a year earlier, the least since February 2004. Energy costs decreased 0.4 percent in July. Gasoline prices dropped 0.8 percent. Gasoline is on the rise this month, according to figures from AAA, with regular pump prices ending Aug. 13 at $2.65 a gallon, compared with an average of $2.53 in July. Food prices, which account for about one-seventh of the CPI, dropped 0.3 percent in July, the biggest decrease since May 2002. All major categories, including meats, dairy products and fruits and vegetables, declined. Food Prices Lower food prices are dragging down revenue at some businesses. Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that sales at U.S. stores open at least a year fell 1.2 percent. Eduardo Castro-Wright, the company’s U.S. stores chief, attributed the drop to stronger than expected deflation in grocery prices. The core index was restrained by an unchanged reading in the area of services. A measure of services excluding fuel was also flat, the weakest showing since December 1982. Shelter costs, which include rents and hotel fares, dropped 0.2 percent last month, also the worst performance since 1982. Owners-equivalent rent, one of the categories used to track rental prices, was unchanged. New vehicle prices climbed 0.5 percent. Sales at automobile dealerships and parts stores climbed 2.4 percent in July, the most since January, according to a Commerce Department report yesterday. Auto Incentives The government is offering credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles. President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the program after the original $1 billion ran out three months earlier than projected. The infusion of funds was meant to extend the program through August. Fed policy makers decided this week to maintain plans to buy as much as $1.45 trillion of housing debt this year to help stem the economic slump, while phasing out Treasury purchases. Officials kept the benchmark interest rate near zero and pledged to keep it low for an “extended period.” Central bankers also said that excess capacity would probably keep inflation “subdued for some time.” The CPI is the broadest of the three monthly price gauges from the Labor Department because it includes goods and services. The department said yesterday that prices of goods imported into the U.S. fell in July for the first time in six months as the cost of commodities such as chemicals, natural gas and petroleum decreased. The 0.7 percent decline in the import price index was larger than forecast. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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