The cost of living in the U.S. climbed in July by the most in four months, led by higher energy and food prices. The consumer-price index increased 0.5 percent from June, more than twice the 0.2 percent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The so-called core gauge, which excludes volatile food and fuel costs, rose 0.2 percent. Some businesses are trying to preserve profits by recouping higher commodity costs from earlier this year, an effort that may wane as a stagnant labor market and wage growth threaten sales. While bigger grocery and fuel bills also strain household budgets, the Federal Reserve last week said longer term inflation is projected to settle “at or below” its goal. “Companies still feel the need to pass through the higher commodity prices that they haven’t yet passed through” to consumers, Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. Still, “the inflationary pressures from commodity costs will ease in the second half of this year. It gives the Fed some leeway.” More Americans than forecast filed applications for unemployment benefits last week, signaling the labor market is struggling two years into the economic recovery, separate Labor Department figures showed. Jobless claims climbed by 9,000 to 408,000 in the week ended Aug. 13, the highest in a month. Economists surveyed by Bloomberg projected a rise in claims to 400,000, according to the median forecast. Real Earnings Today’s report also showed inflation-adjusted hourly wages dropped 0.1 percent in July and were down 1.3 percent from the same month a year ago. The forecast gain in consumer prices was based on the median of 86 economists in a Bloomberg survey. Estimates ranged from a decline of 0.1 percent to a gain of 0.6 percent. The results included a jump in rents, the biggest component of CPI, and increases in apparel, tobacco and prescription drugs. Shelter costs rose 0.3 percent, the most since June 2008. Owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.3 percent after rising 0.2 percent in June. Mounting foreclosures are reducing homeownership while boosting demand for rental housing. The core gauge rose after a 0.3 percent increase in June. Economists had forecast a 0.2 percent July gain, according to the survey median. Last Year Overall consumer prices increased 3.6 percent in the 12 months ended July, matching the year-over-year gain the prior month. The core CPI rose 1.8 percent from July 2010, more than the median forecast of a 1.7 percent increase and following a 1.6 percent gain in the 12 months to June. The Fed’s informal target range for longer-term core inflation is 1.7 percent to 2 percent as measured by a Commerce Department gauge tied to consumer spending. With the economic recovery showing signs of stress, the Fed on Aug. 9 pledged to keep its benchmark interest rate at a record low at least through mid-2013 and said it is “prepared to employ” policy tools to promote growth. The “downside risks to the economic outlook have increased,” the Federal Open Market Committee said in a statement. “Inflation has moderated as prices of energy and some commodities have declined from their earlier peaks.” The Fed also said “inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate” of maximum employment and price stability. Energy Costs Today’s report showed energy costs increased 2.8 percent, the biggest gain since March, from a month earlier. Gasoline and electricity costs increased. Temperatures soared across the U.S., with July records in Texas and Oklahoma, according to the National Climatic Data Center. Last month, temperatures were “above normal” or “much above normal” in 41 of the 48 contiguous U.S. states, it said. Food costs climbed 0.4 percent, driven by higher meats, dairy, fruits and vegetable prices. The cost of medical care increased 0.2 percent. Some companies holding the line on prices include Downers Grove, Illinois-based Sara Lee Corp. (SLE) The maker of food products such as Jimmy Dean sausages said it raised prices in the year ended July 2, and may not need to do much more. “As we start the new year, we have all the price increases in place to deal with the commodity costs as we currently see them,” Marcel Smits, chief executive officer, said on an Aug. 11 teleconference with investors. “That means that we have some firepower to, where necessary, dial back at a tactical level on prices wherever we need it in order to protect our share.” 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. Earlier this week, reports showed producer prices rose more than forecast in July, led by higher tobacco, trucks and pharmaceuticals, and the cost of goods imported into the U.S. also climbed. To contact the reporter on this story: Shobhana Chandra at schandra1@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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