by Bloomberg News | 4:47 PM GST | March 24, 2015
(Bloomberg) -- The cost of living in the U.S. excluding food and fuel rose more than forecast in February, reflecting broad-based gains that helped keep a floor under inflation.
The so-called core consumer-price index climbed 0.2 percent for a second month, a Labor Department report showed Tuesday in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.1 percent increase. Prices overall also climbed 0.2 percent, the first advance in four months, as fuel costs stabilized.
An improving job market is helping underpin consumer confidence, giving American companies a little more pricing power. Members of the Federal Reserve’s policy making Federal Open Market Committee are looking for inflation to accelerate and close in on their 2 percent target as they weigh the timing of their first interest rate increase since 2006.
“You’re going to see some floor built into prices,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, which correctly forecast the increase in core prices. For the Fed, the report “will give them confidence that headline inflation will be near 2 percent in the medium-term, which is all they want at this point.”
Stock-index futures held earlier gains after the report and the yields on Treasury securities were little changed. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.1 percent to 2,096.6 at 8:45 a.m. in New York. The yield on the benchmark 10-year note was 1.89 percent compared with 1.91 percent late on Monday.
The forecast for core consumer prices was based on the median of 85 economists in a Bloomberg survey, and estimates ranged from little change to a 0.3 percent increase. On a year-over-year basis, core prices climbed 1.7 percent in February after rising 1.6 percent in the 12 months through January.
The overall measure was projected to rise 0.2 percent, according to the survey median. Consumer prices were little changed in the 12 months ended February after falling 0.1 percent in the year through January.
Fed officials are keeping a close eye on inflation and need to be “reasonably confident” price growth will move toward their goal before they raise benchmark interest rates.
“The committee continues to expect a moderate pace of GDP growth with robust job gains and lower energy prices supporting household spending,” Fed Chair Janet Yellen said in a March 18 press conference following the conclusion of a two-day monetary policy meeting in Washington. “Inflation has declined further below our longer-run objective, largely reflecting the lower energy prices.”
The Fed’s preferred measure of price pressures, linked to consumer spending, climbed by 0.2 percent in January from a year before, the weakest reading since October 2009. It hasn’t reached the central bank’s 2 percent goal since April 2012.
Energy costs climbed 1 percent in February after declining for seven consecutive months. Gasoline rose 2.4 percent, the most since December 2013. A decline in fuel prices since last year has given some households relief at the pump, while oil producers have scaled back production to help balance supply with demand.
The average cost of a gallon of regular gasoline was $2.24 in February compared with $2.10 the prior month, according to AAA, the biggest U.S. auto group. It averaged $2.42 on Monday.
The Labor Department’s consumer price report showed food costs increased 0.2 percent in February.
Food and paper expenses at Shake Shack Inc., the burger chain founded by restaurateur Danny Meyer, climbed in the fourth quarter “due to higher commodity costs, particularly beef,” Chief Financial Officer Jeff Uttz said on a March 11 conference call. “Looking ahead, we expect continued pressure on beef prices and as a result anticipate overall commodity inflation for at least 2015 to remain at elevated levels and do not expect to see any relief in the beef market until 2017.”
The advance in core prices was broad-based. Owners-equivalent rent, one of the categories designed to track rental prices, increased 0.2 percent in February.
Costs for used and new automobiles, airline fares and clothing all increased. Men’s apparel showed the biggest gain on record.
One source of weakness was the cost of medical-care services, which dropped for the first time since 1975.
The CPI is the broadest of three price gauges from the Labor Department because it includes all 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.
The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, fell 0.5 percent in February and followed a 0.8 percent drop the prior month, data showed last week. A separate report indicated the cost of imported goods climbed 0.4 percent in February from the month before. Excluding fuels they fell 0.3 percent.
The increase in the cost of living put a bit of a dent in Americans’ take-home pay. Hourly earnings adjusted for inflation fell 0.1 percent from the prior month after surging 1.2 percent in January, a separate report from the Labor Department showed Tuesday. They climbed 2.1 percent over the past 12 months.
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