Inflation Soars as Cost of Living Jumps More Than Forecast

Thursday, 15 Sep 2011 08:43 AM

 

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The cost of living in the U.S. rose more than forecast in August as consumers paid more for food, energy and housing.

The consumer-price index increased 0.4 percent after a 0.5 percent gain in July, figures from the Labor Department showed today in Washington. Economists projected a 0.2 percent gain, according to the median forecast in a Bloomberg News survey. The so-called core gauge, which excludes volatile food and fuel prices, climbed 0.2 percent for a second month.

The rise in commodity prices earlier this year prompted some companies such as Lowe’s Cos. to pass on the higher costs at a time when Americans’ wages are stagnating. Federal Reserve Chairman Ben S. Bernanke last week said inflation was likely to moderate as some price increases prove “transitory.”
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“There has been more momentum in underlying inflation than many had expected,” Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. Still, “inflation won’t be a constraint on Fed policy. The Fed will be focused on the real economy; they know inflation will be moderating.”

Applications for U.S. unemployment benefits unexpectedly rose last week to the highest level since the end of June, underscoring a struggling labor market, the Labor Department also said. Jobless claims climbed by 11,000 to 428,000 in the week ended Sept. 10 that included the Labor Day holiday.

New York Manufacturing

A Federal Reserve Bank of New York report manufacturing in the region contracted at a faster pace in September. The Federal Reserve Bank of New York’s general economic index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August. Readings less than zero signal companies in the so- called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.

Stock-index futures pared gains after the figures. The contract on the Standard & Poor’s 500 Index expiring in December rose 0.2 percent to 1,184.5 at 8:48 a.m. in New York after climbing 0.7 percent earlier.

Today’s consumer-price report also showed inflation- adjusted hourly wages fell 0.6 percent in August, the most since July 2008, and were down 1.9 percent from the same month a year ago.

The forecast gain in consumer prices was based on the median of 84 economists in a Bloomberg survey in which estimates ranged from a decline of 0.2 percent to a gain of 0.4 percent.
Higher Rents

The results included a 0.4 percent jump in rents, the most since June 2008. Shelter costs climbed 0.2 percent.

Owners-equivalent rent, one of the categories designed to track rental prices, also rose 0.2 percent after rising 0.3 percent in July. Mounting foreclosures are reducing homeownership while boosting demand for rental housing.

The core gauge rose after a 0.2 percent increase in July. Economists had forecast a 0.2 percent August gain, according to the survey median.

Overall consumer prices increased 3.8 percent in the 12 months ended August, matching the year-over-year gain the prior month. The core CPI rose 2 percent from August 2010, more than the median forecast of a 1.9 percent increase and the most since November 2008.
Core Inflation

The Fed’s informal target range for longer-term core inflation is 1.7 percent to 2 percent as measured by a Commerce Department gauge tied to consumer spending.

Today’s report showed energy costs increased 1.2 percent from a month earlier. Gasoline prices climbed 1.9 percent and were up 32 percent from a year earlier.

The consumer price report follows Bernanke’s comments last week to the Economic Club of Minnesota that central bank officials expected inflation to slow as prices for oil and other commodities ease.

“We see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy,” Bernanke said. “Inflation is expected to moderate in the coming quarters,” he said, citing the waning of “transitory” influences like high fuel prices and global supply disruptions linked to Japan’s March earthquake and tsunami.

Food costs rose 0.5 percent, driven by higher dairy, meats, fruits and vegetable prices.
Cars and Clothing

The cost of medical care rose 0.2 percent. Costs of passenger cars were unchanged, while used vehicle prices increased 0.9 percent. Apparel costs climbed 1.1 percent, the most since March.

Recent data have shown the U.S. economy is stumbling. Retail sales were unchanged in August, the economy generated no jobs and hourly earnings fell.

Lowe’s, the second-largest home-improvement retailer, has been negotiating with vendors to minimize costs while passing some increases onto consumers.

“Our approach is to negotiate as hard as we can to the lowest cost possible,” Robert Gfeller, executive vice president for merchandising at Lowe’s, said in a teleconference Sept. 7. “Where we have taken (increased) pricing, we have moved some through to retail.”

Toyota Motor Corp. (7203) is among carmakers offering lower prices after inventories recovered following Japan’s earthquake. The Toyota City, Japan-based automaker is starting a blitz of U.S. model releases, some of them with cheaper price tags, to regain sales lost to rivals such as Hyundai Motor Co. after three years that included recession, recalls and the earthquake.

Toyota last month unveiled the 2012 Camry in Hollywood, California, with price reductions ranging from $200 to $2,000 on the top-end, four-cylinder Camry, Bob Carter, group vice president of U.S. sales, said in an interview.

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