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Food fuel advance consumer prices in may Original Source Link: (May no longer be active)
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Posted on Tue, Jun. 15, 2004
Food, fuel advance consumer prices in May
By JEANNINE AVERSA
Associated Press
WASHINGTON - Consumer prices advanced in May at the fastest pace in more than three years, as rapidly increasing food and fuel costs forced Americans to dig deeper into their pockets.
But even with the pickup, Federal Reserve Chairman Alan Greenspan said Tuesday that he and his Fed colleagues aren't worried that the country is on the brink of an unwanted surge in inflation. Any interest rate increases by the Fed would be at a measured pace unless economic conditions change, he said.
The Consumer Price Index, the government's most closely watched inflation barometer, rose 0.6 percent last month, the largest increase since January 2001 and up from a 0.2 percent rise in April, the Labor Department reported.
However, the "core" rate of inflation, which excludes volatile food and energy prices, increased by only 0.2 percent in May, down from a 0.3 percent rise the month before. From an economic point of view, that suggested prices of other goods and services were more subdued - an encouraging sign that inflation is not a danger to the economy, analysts said.
Nonetheless, the latest snapshot of the nation's inflation climate would justify a move by the Federal Reserve to raise interest rates for the first time in four years when it meets later this month, economists said.
Some companies are finding it easier to raise prices now that the economy is strengthening - something they found hard to do during the economic slump.
Appearing at a Senate hearing on his nomination to a fifth term as Fed chief, Greenspan said he and his colleagues still hold the view that "inflationary pressures are not likely to be a serious concern in the period ahead" and they probably can boost interest rates gradually to head off inflation. If their forecasts, however, turn out to be wrong, Greenspan again suggested as he did last week that more aggressive action could be taken.
On Wall Street, Greenspan's remarks lifted stocks. The Dow Jones industrials gained 45.70 points to close at 10,380.43.
Economists widely expect the Fed will boost short-term interest rates, currently at a 46-year low of 1 percent, for the first time in four years on June 30 - now that the economic recovery is firmly rooted. Most economists are forecasting a one-quarter percentage point increase. A few are predicting a bolder, half- percentage point move.
President Bush, meanwhile, said he was pleased with the economy's performance. "We've overcome a lot," he said. "Not only are we strong today, we are getting stronger."
A recent Associated Press poll conducted by Ipsos-Public Affairs shows a slight improvement in Bush's economic ratings. About 47 percent of the respondents said they approve of the president's performance on the economy, up from 43 percent who held that view.
President Clinton wasn't doing much better during his re-election bid. The Democrat's economic approval rating varied from the high 40s to low 50s in June of 1996.
Analysts don't believe inflation currently threatens the recovery, but the upward pressure in that area marks a big change in the pricing climate from a year ago. The Fed then was worried about the prospects of deflation, which is a prolonged and widespread price decline.
For the first five months of this year, consumer prices rose at a seasonally adjusted annual rate of 5.1 percent, exceeding the 1.9 percent increase for all of last year. Core prices increased at a rate of 2.9 percent, compared with a 1.1 percent advance registered for 2003.
Still, by historical standards, the current rate of inflation is considered relatively low, analysts said.
In May, energy prices propelled the advance in the overall CPI, rising 4.6 percent, the largest gain since January and up from a 0.1 percent rise in April. Gasoline prices last month shot up 8.1 percent, fuel oil prices went up 3.5 percent and natural gas prices increased 1.2 percent.
Food prices in May jumped 0.9 percent, the biggest increase since January 1990, and up from a 0.2 percent rise in April. Analysts said more expensive transportation costs due to higher fuel prices were a factor in the increase. Prices for milk, cheese and other dairy products rose 6.8 percent, the largest gain since October 1946, reflecting a federal increase in the minimum price paid to dairy farmers, economists said.
The price of crude oil, which peaked at around $42 a barrel in late May, is expected to ease later this year. That should help gasoline and other energy prices as well as food prices settle down in the coming months, analysts said.
"I think the worst is over," said Mark Zandi, chief economist at Economy.com.
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