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Consumer Prices Pick Up as Americans Pay More for Food, Rents

April 15 (Bloomberg) -- Consumer prices accelerated in March as Americans paid a bit more for food and rent, a signal of improving demand in the world’s largest economy that will ease Federal Reserve policy makers’ concern about too-low inflation.

The consumer-price index climbed 0.2 percent after increasing 0.1 percent the prior month, a Labor Department report showed today in Washington. Over the past 12 months, costs rose 1.5 percent compared with a 1.1 percent year-to-year gain in February that was the smallest in four months.

Rents may continue to climb as more Americans, who are just starting to recover from the collapse in home prices, forego ownership and instead turn to leasing properties. The Fed’s goal of 2 percent inflation has proved elusive as the economic expansion was slow to gain momentum.

“The overall picture is that inflation has stopped falling and is on a gradual uptrend,” said Thomas Costerg, an economist at Standard Chartered Plc in New York, who correctly projected the gain in CPI. “To some extent, today’s numbers relieve fears about the U.S. slipping into deflation.”

The median forecast of 82 economists surveyed by Bloomberg called for a 0.1 percent rise. Estimates ranged from unchanged to a 0.4 percent gain.

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June climbed 0.2 percent to 1,827.4 at 9:07 a.m. in New York.

Core Prices

The core gauge, which excludes volatile food and fuel costs, also rose 0.2 percent in March, after climbing 0.1 percent the previous month. Economists had forecast a 0.1 percent gain, according to the survey median.

The core CPI climbed 1.7 percent from March 2013 following a 1.6 percent advance in the prior 12 month period.

The Fed’s 2 percent goal is based on the Commerce Department’s inflation gauge that is tied to consumer spending. That measure climbed 0.9 percent in the 12 months through February.

Energy costs decreased 0.1 percent in March from a month earlier, while food expenses climbed 0.4 percent, reflecting the biggest gain in pork prices since August 2012.

About two-thirds of increase in core prices reflected rising rents as more Americans forego homeownership.

Owners-equivalent rent, one of the categories designed to track rental prices, climbed 0.3 percent. Over the past 12 months, shelter costs, which also include hotel rates, increased 2.7 percent, the biggest gain since March 2008.

Hourly Pay

The cost of living gain squeezed paychecks. Hourly earnings adjusted for inflation dropped 0.3 percent, the biggest decrease since February 2013, after a 0.3 percent increase the prior month, a separate report from the Labor Department showed. They were up 0.5 percent over the past 12 months, following a 1.1 percent gain.

Department-store chains and clothing sellers may continue to hold the line on prices as they compete for customers.

Michael Nicholson, chief financial officer of Women’s clothing chain Ann, said on a March 14 earnings conference call that he sees “a very promotional environment in terms of the consumer” so far this year.

At Macy’s, “putting importance on value and pricing” is a theme across its consumers, Chief Financial Officer Karen Hoguet told analysts at a consumer conference on March 25. While that isn’t new for the department-store chain, “it’s something we will continue to deal with going into the future.”

Fed officials debated whether to signal a concern with too-low inflation when they met March 18-19 to discuss the likely future path of interest rates.

Fed Views

“A few participants proposed adding new language in which the committee would indicate its willingness to keep rates low if projected inflation remained persistently below the committee’s 2 percent longer-run objective,” according to meeting minutes released April 9. That would involve including a “quantitative element” in the Fed’s statement, according to the report.

Policy makers at the meeting moved away from such quantitative guideposts, dropping language that tied an increase in their benchmark interest rate to a specific level of unemployment. Instead, they said they would consider a “wide range of information,” including measures of labor-market conditions, inflation pressures and financial conditions.

Meeting Minutes

The minutes also showed that “a couple” of participants suggested that too-low inflation “raised questions” about whether the Fed was providing enough stimulus. Still, “most” expected prices to return to the 2 percent goal “over the next few years.” Their economic projections in March showed the personal consumption expenditures price index in a range of 1.7 percent to 2 percent by 2016.

The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

Wholesale prices rose 0.5 percent in March, driven by the cost of services while commodities stagnated, data showed last week. Import prices climbed 0.6 percent last month following a 0.9 percent gain.

The trend of inflation running below target isn’t just limited to the U.S. Almost two-thirds of the 121 economies tracked by Bloomberg are experiencing smaller gains in consumer prices than a year ago, with many undershooting their goals. Yet policy makers seem to be ignoring the danger of deflation, according to some economists.

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