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Consumer prices rise greater than expected Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=ahy.VEk4l4AY&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=ahy.VEk4l4AY&refer=home
U.S. March Consumer Prices Rise 0.6%; Core Rises 0.4%
April 20 (Bloomberg) -- U.S. consumer prices rose a greater- than-expected 0.6 percent in March, led by gasoline, airfares, and hotel rooms, and prices excluding food and energy had the biggest gain in more than two-and-half years.
The March increase followed a 0.4 percent gain in February, the Labor Department said today in Washington. Core prices, considered less volatile because they omit food and energy, rose 0.4 percent in March, the biggest increase since August 2002. Forecasts called for the overall index to rise 0.5 percent and the core to rise 0.2 percent.
The increase in core inflation suggests companies were able to pass along higher costs for fuel and materials to consumers. Federal Reserve officials said last month that they've seen greater evidence of pricing power. Central bankers still are likely to confine rate increases to quarter-point steps, economists said after today's report.
``You still see some increases in inflation, but it's still not enough to be a major concern at this point,'' Glenn Haberbush, an economist at Mizuho Securities USA in Hoboken, New Jersey, said. ``I don't think it rocks the boat back to expecting 50-basis-point increases.''
The year-over-year increase in core consumer prices decelerated for the first time since August. Compared with March 2004, core prices were up 2.3 percent, after a gain of 2.4 percent in February that was the biggest since an equivalent increase in August 2002.
Lodging Costs
Also, the core index was pushed up by a 3.9 percent jump in lodging costs, which economists said is typically a volatile category. Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said an early Easter may have led hotels and motels to raise rates sooner than usual.
Treasury securities fell after the March jump in the core index, which exceeded the highest forecast. The 4 percent note maturing in February 2015 fell 1/2, pushing the yield up to 4.27 percent from 4.21 percent as of 9:06 a.m. in New York.
Workers' real average weekly earnings fell 0.3 percent during the month, the second straight decline. Earnings also fell 0.3 percent in February.
Year-Over-Year
Year-over-year, all consumer prices rose 3.1 percent, as expected, compared with 3 percent in February.
The consumer price index is the government's broadest measure of the costs of goods and services. Almost 60 percent of the index covers services.
Inflation ``remains well contained, and things look good going forward,'' Janet Yellen, president of the Federal Reserve Bank of San Francisco, said yesterday in an interview with CNBC. Fed Governor Susan Bies said in Buffalo, New York, this week that ``longer-term inflation expectations appear to have remained well contained'' even as inflationary pressures have risen in recent months.
Bies's remarks echo language in the minutes from the last meeting of the Federal Open Market Committee on March 22, when it raised the benchmark U.S. interest rate to 2.75 percent from 2.50 percent. Central bankers said they were concerned about inflation pressures and planned to control them with ``measured'' rate increases. The statement also said that the rise in energy prices ``has not notably fed through to core consumer prices.''
Energy Prices
Economists expect a further increase, to 3 percent, when central bankers gather again on May 3. Forecasts for high the Fed will go before leaving rates alone range from about 3 percent to 5 percent.
Today's report ``is the first piece of data that I've seen that would lead me to even consider a 50-basis-point move, but I think we would need to see several ugly price readings and a renewal of strong economic growth before a larger rate hike becomes a realistic option,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.
Before today's report, economists were expecting that consumer prices would rise 2.7 percent this year, according to the median forecast in a Bloomberg News survey taken April 1 to April 7. Prices rose 3.3 percent in 2004, the most in four years, as the cost of oil surged.
Energy prices, which account for about a 14th of the index, rose 4 percent in March after rising 2 percent the month before. Compared with a year earlier, energy prices were up 12.4 percent. Gasoline prices rose 7.9 percent in March, the most since October, and were up 17 percent from a year earlier.
Food prices, which make up about a fifth of the consumer price index, rose 0.2 percent last month, after a 0.1 percent increase in February.
The cost of all goods, including cars, apparel and food, rose 0.9 percent last month after rising 0.4 percent in February. Goods prices were 2.9 percent higher than last year.
Services
Services increased 0.4 percent, after rising 0.3 percent in February, and were up 3.2 percent from a year earlier.
The cost of medical care rose 0.5 percent last month after a 0.6 percent increase in February. Costs were up 4.3 percent from a year earlier.
Housing costs, which include some energy costs and account for one-third of the index, rose 0.5 percent after rising 0.4 percent the month before. A category designed to track rental prices rose 0.3 percent after rising 0.2 percent in February.
Prices for new cars fell 0.4 percent in March after rising 0.1 percent the month before.
General Motors Corp., the world's largest automaker, yesterday reported a net loss of $1.1 billion in the first quarter and is trying to avoid a repeat in the current period. Part of Chief Executive Rick Wagoner's strategy is to cut vehicle prices.
Clothing prices rose 0.8 percent in March, the most in a year, after falling 0.2 percent. Drug prices fell 0.1 percent in March. They were up 3.3 percent from a year earlier.
Passing Along Increases
Gasoline prices have continued to rise and may have an even greater impact on consumer prices this month than they did in March. The average U.S. retail price for gasoline reached a record $2.32 a gallon for the week that ended April 11, according to the Energy Department.
Pepsi Bottling Group Inc. was able to pass along its higher costs for plastic resin, aluminum and sweeteners, Chief Executive John T. Cahill said April 12. The Somers, New York, company increased prices 4 percent in the fourth quarter, and those increases have stuck.
The company, the world's No. 2 soft-drink distributor, boosted its profit outlook for this year to at least $1.80 a share from its previous forecast of $1.78 a share.
``The U.S. pricing environment was favorable and the rate increases we implemented in the fourth quarter of 2004 have held in the marketplace,'' Cahill said in a statement.
Airfares rose 2.7 percent last month, the biggest increase since June 2001, after a 1.5 percent increase in February that was the biggest since July 2003.
Major U.S. airlines, including American Airlines, United Airlines and Delta Air Lines Inc., raised prices on leisure fares by $60 over a five-week period that ended April 1. The increases were part of plans to try to cover higher jet fuel costs.
Last Updated: April 20, 2005 09:15 EDT
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