Bloomberg News

Inflation in U.S. Probably Rose at Slowest Pace in Six Months

June 15, 2011

June 15 (Bloomberg) -- The cost of living in the U.S. probably rose in May at the slowest pace in six months as fuel costs waned, economists said before a report today.

The consumer-price index increased 0.1 percent after a 0.4 percent gain in April, according to the median forecast of 79 economists surveyed by Bloomberg News. The so-called core measure, which excludes more volatile food and energy costs, may have increased 0.2 percent for the fourth time in five months.

The data support Federal Reserve Chairman Ben S. Bernanke’s expectation that the jump in commodity expenses will prove to be temporary. Companies like McDonald’s Corp. and Abercrombie & Fitch Co. are among those that haven’t been able to fully pass cost increases along to customers as higher energy prices and unemployment caused consumer spending to cool.

“The moderation in fuel costs is welcome news,” said Gregory Daco, a senior economist at IHS Global Insight in Lexington, Massachusetts. “The risk of spiraling inflation in the U.S. currently seems far-fetched given the substantial labor-market slack and muted wage growth.”

The Labor Department’s price data are due at 8:30 a.m. in Washington. Estimates of the economists surveyed ranged from declines of 0.2 percent to gains of 0.4 percent.

Another report today is projected to show the worst of the slowdown in manufacturing as a result of the disaster in Japan has already passed. Fed figures at 9:15 a.m. will show industrial production grew 0.2 percent in May after stalling in April, according to the Bloomberg survey median. A regional report from the New York Fed, released at 8:30 a.m., may show factories expanded at a faster rate in June.

12-Month Gain

May’s projected increase would mean consumer prices climbed 3.4 percent over the past 12 months, the biggest year-to-year gain since October 2008.

The advance in core prices since May 2010 would accelerate to 1.4 percent, the most since January 2010.

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.

Commodities Retreat

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.

Investors’ expectations for inflation, as measured by the breakeven rate between Treasury Inflation Protected Securities and nominal bonds, have fallen over the last two months as the price of commodities such as oil dropped and the economic recovery slowed. The expected rate of inflation over the next 10 years fell to 2.26 percent from 2.66 percent on April 11, which was the highest level since August 2006.

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 help offset surging meat costs, which analysts said prompted customers to buy cheaper items on the menu.

Smaller Margins

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 labor in Asia increase. Abercrombie plans to raise prices in the U.S. in early September, Ramsden said.

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.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Kevin Costelloe

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


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