U.S. Consumer Prices Fell in June on Drop in Fuel Costs
July 15, 2011, 9:18 AM EDTBy Alex Kowalski
(Updates with economist comment in fourth and 20th paragraphs.)
July 15 (Bloomberg) -- The cost of living in the U.S. fell in June for the first time in a year as the biggest drop in energy costs since 2008 masked growing inflation in other goods and services like autos, clothing and hotel rates.
The consumer-price index decreased 0.2 percent, compared with the 0.1 percent drop 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 for a second month, more than forecast and the biggest back-to-back gain in three years.
Cheaper fuel removes some of the “temporary” stresses Federal Reserve Chairman Ben S. Bernanke said hurt spending among households burdened by slowing job growth and 9.2 percent unemployment. At the same time, the prior jump in raw-material costs keep rippling though the economy, one reason Federal Reserve policy makers are divided on their next action.
“The upward momentum for core inflation will continue,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York. “Some of the earlier rises in energy prices have been bleeding through. The amount of slack that’s in the economy isn’t as much as we or the Fed first believed.”
Forecasts for consumer prices in the Bloomberg survey of 80 economists ranged from declines of 0.3 percent to gains of 0.2 percent. Economists projected the core gauge would rise 0.2 percent, according to the survey median.
Manufacturing Shrinks
Another report today showed manufacturing in the New York region unexpectedly contracted in July for a second straight month as orders shrank at a faster pace. The Federal Reserve Bank of New York’s general economic index rose to minus 3.8, lower than the most pessimistic forecast in a Bloomberg News survey, from minus 7.8 the prior month.
Readings lower than zero signal contraction in the so- called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.
Stock-index futures trimmed earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.3 percent to 1,310.8 at 8:54 a.m. in New York. Treasury securities were little changed.
Core Accelerates
The last time prices excluding food and fuel rose 0.3 percent for two straight months was in June and July 2008.
Overall prices increased 3.6 percent in the 12 months ended June, the same as the year-over-year gain in May. The core CPI rose 1.6 percent from June 2010, the most since January 2010.
Energy costs decreased 4.4 percent from a month earlier, the biggest decline since December 2008, today’s report showed. Food costs climbed 0.2 percent, the smallest advance this year.
Apparel costs jumped 1.4 percent in June, the biggest surge since March 1990. Lodging away from home, which includes hotel rates, soared 3 percent after a 2.9 percent gain in May, while the cost of a new car increased 0.6 percent.
It’s too early to predict how consumers will react to increased prices, according to Levi Strauss & Co. Chief Financial Officer Blake Jorgensen. Levi Strauss, the closely held maker of blue jeans and Dockers pants, boosted prices in the first three months of the year as cotton costs soared.
Clothing Prices
“We haven’t seen the full impact of apparel prices on the consumer,” Jorgensen said in a July 12 call with analysts. “When you combine that with some of the continued pressure with the consumer on general products, food, gas, commodities that they are experiencing and no job growth, we’re still cautious here in the U.S.”
Bernanke told Congress this week that “most of the recent rise in inflation appears likely to be transitory.” Stabilization of oil prices and other commodities, along with slack in the labor market, indicates inflation will moderate, Bernanke said.
The rise in prices came as U.S. economic growth cooled, leaving Fed officials divided on whether the economy needed additional stimulus, minutes of the central bank’s June 21-22 meeting showed earlier this week. Some members said a further slowdown in the recovery would signal a need for more support, while others said the growing risk of inflation would require withdrawing stimulus sooner than currently anticipated.
Bernanke yesterday told Congress that the central bank isn’t currently ready to embark on a third round of government bond-buying to stimulate the economy.
Fed’s Goal
Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their June forecast. Their preferred price gauge, which excludes food and fuel, rose 1.2 percent in May from a year earlier.
The jump in auto prices may reflect shortages in parts caused by the tragedy in Japan, indicating costs may level off as the imbalances are corrected, economists said.
“We will have sufficient auto parts later in the year and oil prices are coming down, so that impulse on core prices will fade,” Kevin Harris, chief economist at Informa Global Markets in New York, said before the report.
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 fell 0.4 percent in June, while the cost of goods excluding fuel and food rose 0.3 percent. Import prices in the U.S., reported July 13, dropped 0.5 percent from the prior month as oil and food expenses retreated.
--With assistance from Chris Middleton in Washington. Editor: Carlos Torres
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
