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Consumer prices rise in may Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aF_ppVO2IFGE&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aF_ppVO2IFGE&refer=home
U.S. May Consumer Prices Rise 0.6%; Core Rate Increases 0.2%
June 15 (Bloomberg) -- Prices paid by U.S. consumers in May rose 0.6 percent, the biggest increase since January 2001, as gasoline costs surged and dairy products rose the most since 1946, government figures showed.
The increase in the consumer price index followed a 0.2 percent gain in April, the Labor Department said in Washington. Excluding food and energy, the so-called core index rose 0.2 percent after a 0.3 percent rise.
Consumer prices were 3.1 percent higher last month than in May of last year, the biggest 12-month increase since June 2001. The acceleration, combined with the boost to incomes from the creation of 1.2 million jobs so far this year, means Federal Reserve policy makers will bring an end later this month to the lowest interest rates in almost 46 years, economists said.
``Combine strong demand, tight supply and rising production costs, and you have the ingredients for higher inflation ahead,'' said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto. ``The Fed is feeling the kitchen's heat.''
All 23 primary U.S. government securities dealers surveyed last week expect the Fed to raise the overnight bank lending rate a quarter point on June 30 from 1 percent. The implied yield on the January federal funds futures contract suggests an overnight bank rate at 2.5 percent by the end of this year.
Fed officials, led by Chairman Alan Greenspan, have signaled for more than a week they are prepared to increase rates, and perhaps more quickly than investors have been predicting, if inflation exceeds forecasts. Greenspan testifies before a Senate panel later today.
``The recent pickup in price increases probably does not represent the leading edge of steadily worsening inflation,'' Fed Governor Donald Kohn told the National Economists Club in Washington on June 4. ``That said, the federal funds rate cannot be held at its current level indefinitely if price stability is to be preserved.''
Forecasts
Economists had projected a 0.5 percent increase in the consumer price index, based on the median forecast in a Bloomberg News survey. Core prices were forecast to rise 0.2 percent.
Workers' earnings adjusted for inflation fell 0.4 percent last month after rising 0.1 percent, the Labor Department said in a separate release.
Prices minus food and energy were 1.7 percent higher than a year earlier, compared with a 1.8 percent rise in the 12 months ended in April. Last year, the core index rose 1.1 percent, the smallest yearly gain since 1960 as global competition kept many companies from boosting prices.
This Year
So far this year, consumer prices are rising at a 5.1 percent annual rate compared with a 2.3 percent increase at the same time last year. Core prices are increasing at a 2.9 percent annual pace, compared with a 1.3 percent rate in the first five months of 2003.
Energy prices, which account for about a 14th of the index, rose 4.6 percent in May after a 0.1 percent increase a month earlier. Gasoline prices jumped 8.1 percent, and electricity prices rose 1.1 percent. Pump prices for regular gasoline, averaged nationwide, rose to $2.05 a gallon on May 26, according to the AAA, formerly the American Automobile Association.
Food prices, which account for about a fifth of the index, rose 0.9 percent after a 0.2 percent rise in April. The price of milk, cheese and other dairy products surged 6.8 percent in May, the largest increase since an 8.2 percent jump in October 1946.
The cost of medical care rose 0.3 percent last month after rising 0.4 percent in April. Housing costs, which include some energy costs and account for one-third of the index, rose 0.4 percent. Airfares decreased 0.8 percent last month after a 1 percent rise.
Clothing
The cost of clothing rose 0.3 percent following no change. New auto prices rose 0.1 percent after falling 0.1 percent.
The consumer price index is the government's broadest gauge of the costs of goods and services. Almost 60 percent of the index covers prices paid for services.
U.S. personal spending rose 0.3 percent in April, more than expected, a government report last month showed. Prices paid by consumers for goods and services may rise 2.7 percent this year, the most since a 3.4 percent increase in 2000, according to the median estimate of 45 economists surveyed from May 27 to June 7.
Dallas-based Neiman Marcus Group Inc., an upscale department- store chain, said earlier this month that sales during the quarter ended May 1 rose 21 percent, the biggest gain in almost eight years. The retailer will sell products costing as much as 10 percent more this fall, UBS analyst Linda Kristiansen wrote in a client report.
Some Discounts
Other companies are still employing discounts to boost sales. U.S. automakers and Japan's Toyota Motor Corp. boosted incentives on cars and trucks in May to spur sales. Automakers sold vehicles at an annual pace of 17.8 million last month compared with 16.4 million in April, according to industry data.
Houston-based Continental Airlines Inc., the fifth-largest U.S. carrier, dropped a round-trip fare increase after some competitors didn't follow suit in all markets, said Terry Trippler, who monitors fares for his TerryTrippler.com Internet travel agency. The failed attempt was at least the fifth such unsuccessful increase this year by major U.S. airlines.
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