Cost-of-Living Increases Less Than Forecast in May
The cost of living in the United States excluding food and fuel rose less than forecast in May, a sign inflation may take time to meet the Federal Reserve’s goal.
The so-called core measure increased 0.1%, the smallest gain this year, after climbing 0.3% in April, Labor Department figures showed June 18 in Washington.
The median forecast of 82 economists surveyed by Bloomberg News called for a 0.2% rise. The overall consumer-price index advanced 0.4%, as fuel costs rebounded.
Declining costs for used cars and trucks, clothing and hotel stays combined with a deceleration in health-care expenses held back the core index, swamping advances in rents. Fed policymakers, who ended a meeting June 17 to assess when to begin raising interest rates, reiterated they see price gains gradually progressing toward their target.
“Inflation is way below where the Fed is hoping it’ll end up,” said Nariman Behravesh, chief economist for IHS Inc. in Lexington, Massachusetts, who predicted the core CPI would rise 0.1%. “The pace of interest rate hikes is going to be very, very slow.”
Other reports showed fewer Americans than forecast filed claims for jobless benefits last week and the current account deficit widened in the first three months of the year.
The deficit on the current account, which is the broadest measure of trade because it includes international financial transactions, increased to $113.3 billion in the first quarter, the widest in almost three years, from $103.1 billion at the end of 2014.
The median forecast for total prices of 84 economists surveyed by Bloomberg News called for a 0.5% gain. Estimates ranged from gains of 0.2% to 0.7%.
Overall consumer prices were little changed in the 12 months ended in May, after a 0.2% year-over-year decline the prior month.
The core CPI measure increased 1.7% from May 2014, after a 1.8% rise in the prior 12-month period.
The median projection in the Bloomberg survey called for the core gauge to rise 0.2% from April and to climb 1.8% from the prior year. Estimates for the monthly figure ranged from gains of 0.1% to 0.3%.
Energy costs increased 4.3% from a month earlier, the report showed, while food prices were little changed for a second month.
The cost of clothing and used cars and trucks in May showed the biggest drop this year, and hotel rates declined by the most since October 2013.
Expenses for medical care increased 0.2% after a 0.7% increase in April.
The Fed’s preferred gauge of inflation, linked to consumer spending, hasn’t been above the central bank’s 2% goal since March 2012. It climbed by 0.1% in April from a year earlier, the smallest 12-month gain since October 2009. The Commerce Department will release the May figure on June 25.
The recent stabilization in energy costs is helping underpin inflation. Oil prices have rebounded from a six-year low as falling U.S. stockpiles and a slowdown in drilling counter data showing that producers elsewhere are pumping more.
Fed officials, concluding their two-day meeting on June 17, said inflation will probably remain near its recent low level in the near term. Still, they expect it to “rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate,” according to the central bank’s statement.
Chair Janet Yellen, at a press conference after the meeting, said the big declines in energy prices toward the end of 2014 are not going to wash out of the inflation data until later this year, though the recent steadying is encouraging.
“The fact that energy prices have stabilized means the pressure from that source is diminishing,” she said.
Companies are having mixed success trying to charge customers more.
Revlon Inc., the cosmetics maker, started increasing prices in the second half of last year, executives said on a May 7 earnings call.
Ann Inc., owner of the Ann Taylor and Loft women’s clothing stores, is among retailers using discounts to attract shoppers. Severe weather, soft traffic and the highly competitive retail environment in the first quarter caused the company to offer more promotions than planned, executives said on an earnings conference call on May 22.
The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60% of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices advanced 0.5% in May, while the import cost gauge climbed 1.3% from the prior month.
