BLBG: Consumer Prices in U.S. Increased More Than Forecast in May
The cost of living in the U.S. rose more than forecast in May reflecting higher prices for everything from autos to hotel rooms, signaling raw-material expenses are filtering through to other goods and services.
The consumer-price index increased 0.2 percent, compared with the 0.1 percent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent, the biggest increase since July 2008.
Higher input prices are leading companies like McDonald’s Corp. (MCD) and Abercrombie & Fitch Co. (ANF) to try to pass cost increases onto customers strained by more expensive gasoline and 9.1 percent unemployment. At the same time, Federal Reserve Chairman Ben S. Bernanke’s has repeated that the jump in commodity expenses will prove temporary.
“Core inflation is not panic-inducing, but it is signaling a continued rise in prices despite a high unemployment rate,” Drew Matus, a senior U.S. economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “That makes you question how the Fed will react as we move forward and potentially core inflation moves even higher.”
Forecasts for consumer prices in the Bloomberg survey of 79 economists ranged from declines of 0.2 percent to gains of 0.4 percent. Economists projected the core gauge would rise 0.2 percent, according to the survey median.
12-Month Change
Prices increased 3.6 percent in the 12 months ended May, the biggest gain since October 2008. The core CPI climbed 1.5 percent from May 2010, the most since January 2010.
Core prices were pushed up by a 1.1 percent advance in the cost of new vehicles which was the biggest gain since October 2009. The increase may reflect supply shortages caused by the disaster in Japan.
Automakers cut spending on incentives for U.S. customers in May by 19 percent to an average $2,303 per vehicle, the lowest in more than half a decade, according to Autodata Corp.
“Some of increase in core prices will be due to temporary factors, and that relates to the prices of new and used motor vehicles,” Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “Faced with dwindling inventory following the Japan related disruptions to production, auto retailers responded by raising their prices.” Such increases “probably won’t be sustained,” he said, after sales dropped.
Broad-Based Gains
At the same time, the cost of other goods and services also advanced. Hotel rates climbed 2.9 percent last month, clothing prices increased 1.2 percent and recreation expenses increased 0.3 percent.
Abercrombie & Fitch’s Chief Financial Officer Jonathan Ramsden said on June 8 that rising costs would narrow the teen retailer’s second-quarter profit margins. The company is facing rising costs along with the rest of the apparel industry as the price of cotton, oil and Asian labor increase. Abercrombie plans to raise U.S. prices in early September, Ramsden said.
Food costs increased 0.4 percent, today’s report showed.
McDonald’s, the world’s largest restaurant chain, said last week that U.S. sales at stores open at least 13 months advanced 2.4 percent, the smallest monthly gain since February 2010. The Oak Brook, Illinois-based company has raised prices over the past year to offset surging meat costs, which analysts said prompted customers to buy cheaper items on the menu.
Energy costs decreased 1 percent from a month earlier, today’s report showed. Gasoline prices fell 2 percent.
Bernanke’s View
Fed Chairman Ben Bernanke said the U.S. economy, which slowed in the first quarter, will likely pick up as fuel costs fall and as factories in Japan recover from the March earthquake and tsunami, which disrupted auto-parts supplies. There isn’t “much evidence that inflation is becoming broad-based or ingrained,” Bernanke also said at a June 7 speech in Atlanta.
The central bank’s preferred price gauge, which excludes food and fuel, rose 1 percent in April from a year earlier. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their April forecast.
Fed officials are discussing whether to adopt an explicit target for inflation, according to people familiar with the discussions.. Central bank policy makers have argued that greater clarity on inflation could benefit labor markets by helping the central bank anchor price expectations even when rates are low.
Commodities Cool
Commodity prices have retreated since the end of April on concern rising interest rates in countries from China to India will slow the global economy. Crude oil futures on the New York Mercantile Exchange reached $113.93 a barrel on April 29, the highest level since September 2008, before closing at $102.7 a barrel on May 31.
The CPI is the broadest of three monthly price measures from the Labor Department because it includes goods and services. About 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
A Labor Department report yesterday showed the producer- price index in May increased 0.2 percent after increasing 0.8 percent the prior month. Import prices in the U.S., reported last week, unexpectedly rose 0.2 percent from the prior month as more expensive autos and clothing overshadowed the first drop in fuel costs in eight months.
To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
