July 15 (Bloomberg) -- The cost of living in the U.S. rose more than forecast in June, led by a jump in energy costs that overshadowed slower price gains for other goods. The consumer price index increased 0.7 percent, the biggest advance since July 2008, after a 0.1 percent increase in May, the Labor Department said today in Washington. Excluding food and energy costs, the so-called core index rose 0.2 percent. Declines in consumer spending and business investment are forcing companies to boost incentives or keep a lid on prices in order to move merchandise, and preventing them from passing higher energy costs on to customers. A surge in gasoline costs in recent months is now abating, indicating inflation may moderate as the year progresses. “We’ve had a blip in energy prices which has since been reversed,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “The disinflation picture is still very much in place.” A separate report today showed that manufacturing in New York state shrank at the slowest pace in more than a year this month. The Federal Reserve Bank of New York’s so-called Empire Index was minus 0.6, compared with minus 9.4 in June. Treasuries, Stocks Treasuries slid, sending the yield on benchmark 10-year notes up to 3.51 percent at 8:36 a.m. in New York, from 3.47 percent late yesterday. Futures on the Standard & Poor’s 500 Stock Index advanced 1.2 percent to 912.50. Economists forecast consumer prices rose 0.6 percent, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from a 0.2 percent increase to a 1 percent increase. Compared with a year earlier, prices fell 1.4 percent, the biggest drop since January 1950. In the 12 months ended in May, prices dropped 1.3 percent. For the core index, prices were up 1.7 percent from a year earlier. That compares with a 1.8 percent increase in the 12 months ended in May. Energy costs increased 7.4 percent in June. Gasoline prices soared 17 percent. Gasoline prices have come down this month, according to figures from AAA, with regular pump process ending July 13 at $2.52 a gallon, compared with an average $2.64 in June. Also, the price of crude-oil futures closed yesterday at $59.68 a barrel on the New York Mercantile Exchange, compared with $72.68 on June 11. Producer Prices Labor said yesterday that a 6.6 percent increase in the cost of energy led to wholesale prices gaining twice as much as anticipated. Gasoline soared 18.5 percent and home heating oil rose 15.4 percent, yesterday’s report showed. Food prices, which account for about a seventh of the CPI, were unchanged in June, after a 0.2 percent drop in May. Cost increases for ingredients and packaging will slow this year, helping to boost profit, General Mills Inc. Chairman and Chief Executive Officer Ken Powell said July 1. Powell said he expects “little or no” price growth this year as input-cost gains slow from 9 percent in 2008. General Mills, the Minneapolis-based maker of Cheerios and Hamburger Helper, raised prices in fiscal 2009 by 8 percent to counter higher commodity expenses, Chief Financial Officer Don Mulligan said in a telephone interview. The CPI is the broadest of the three monthly price gauges from Labor because it includes goods and services. The cost of goods imported into the U.S. rose 3.2 percent in June, the government said last week. Wholesale prices increased 1.8 percent, Labor said yesterday. 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: Courtney Schlisserman in Washington cshlisserma@bloomberg.net

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