Consumer Prices in U.S. Climb on Jump in Gasoline Costs

July 22 (Bloomberg) -- The cost of living in the U.S. rose in June, paced by a jump in gasoline that is now reversing, bolstering Federal Reserve Chair Janet Yellen’s view that recent increases were temporary. Michael McKee reports on “In The Loop.” (Source: Bloomberg)

The cost of living in the U.S. rose at a slower pace in June and home sales climbed to an eight-month high, showing the economy is generating little price pressure as growth accelerates.

The consumer price index increased 0.3 percent after a 0.4 percent gain the prior month, figures from the Labor Department showed today in Washington. Purchases (ETSLTOTL) of existing houses advanced 2.6 percent to a 5.04 million annual rate, the National Association of Realtors reported.

The data bolster Federal Reserve Chair Janet Yellen’s view that a recent pickup in inflation was temporary and that the world’s largest economy would rebound from a first-quarter slump. That means the central bank can keep interest rates low well into 2015 even as it continues to trim bond purchases.

“The economy and the recovery remain on track, neither too hot nor too cold,” said Laura Rosner, U.S. economist with BNP Paribas in New York, which accurately forecast the change in consumer prices. The Fed “can continue with accommodative policy and let the labor market continue to heal.”

Stocks rose after the data. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,983.53 at the close in New York. The yield on the benchmark 10-year Treasury note was 2.46 percent compared with 2.47 percent late yesterday.

Photographer: David Paul Morris/Bloomberg

Gasoline costs jumped 3.3 percent, the biggest gain since June 2013, accounting for two-thirds of the increase in total prices, today’s report showed. Close

Gasoline costs jumped 3.3 percent, the biggest gain since June 2013, accounting for... Read More

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Photographer: David Paul Morris/Bloomberg

Gasoline costs jumped 3.3 percent, the biggest gain since June 2013, accounting for two-thirds of the increase in total prices, today’s report showed.

The increase in consumer prices last month matched the median forecast of 85 economists surveyed by Bloomberg. Estimates ranged from a 0.2 percent drop to an increase of 0.4 percent.

Year Ago

Consumer prices rose 2.1 percent in the 12 months ended June, the same as in May.

Excluding volatile food and fuel costs, the core measure increased 0.1 percent after rising 0.3 percent in May. It was the smallest gain since February and fell short of the 0.2 percent median forecast of economists surveyed by Bloomberg.

Core prices rose 1.9 percent from June 2013, after advancing 2 percent in the prior 12 months.

While the consumer price index has been “a bit on the high side,” the data can be noisy, Yellen said in a news conference last month following the Fed’s meeting. Broadly speaking, inflation “is evolving in line with the committee’s expectations,” she said.

Not all policy makers agree. James Bullard, president of the St. Louis Fed, said last week that the central bank may have to raise rates more quickly than planned because the rapid drop in unemployment may push inflation “well above” the Fed’s target.

Trimming Stimulus

The central bank has been dialing back its monthly bond purchases as the economy recovers and is on track to end them completely in October.

The rise in consumer prices last month was driven by a jump in gasoline that is now reversing, bolstering Yellen’s view that recent increases were temporary.

Gasoline costs climbed 3.3 percent, the biggest gain since June 2013, accounting for two-thirds of the increase in total prices, today’s report showed.

Falling fuel prices are now giving households some relief. The average cost of regular gasoline reached $3.57 a gallon yesterday after being as high as $3.68 on June 25, according to AAA, the biggest U.S. auto club.

Food costs also showed signs of stabilizing after surging in prior months as a drought in the West and a deadly hog virus pushed up prices for beef, pork and some vegetables and fruits. Food prices increased 0.1 percent in June after surging a combined 1.7 percent from February through May, the biggest four-month jump since June 2011.

Core Rate

The core rate was held back by declines in the cost of new cars and hotel rates, which both dropped by the most since October 2013, today’s report showed.

Wal-Mart Stores Inc. plans to cut prices more aggressively during this year’s back-to-school season and will add inventory to its online store as the chain battles retailers for student spending.

The world’s largest retailer will reduce prices on 10 percent more items this year, Steve Bratspies, the Bentonville, Arkansas-based company’s executive vice president for U.S. general merchandise, said yesterday. The number of back-to-school items it sells online will increase 30 percent to 75,000, he said.

The increase in prices last month took a bite out of paychecks. After adjusting for inflation, hourly earnings were unchanged in June on average and were down 0.1 percent from a year earlier, another Labor Department report showed today.

Housing Rebound

Housing is showing signs of rebounding, which will give the economy a lift in the second half of 2014. The increase in home sales last month exceeded the median forecast of 78 economists surveyed by Bloomberg, which projected a 4.99 million rate.

The number of properties on the market rose to an almost two-year high, limiting median prices to the smallest gain since March 2012, today’s report showed.

Historically low interest rates and smaller price increases will help bring homeownership within reach for more Americans. A pickup in employment opportunities that lead to faster wage growth would provide an added spark for a residential real-estate market that began to soften in the middle of 2013.

“We’re recovering from the winter doldrums, more people are working and interest rates are attractive,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a 5.05 million pace of sales for June.

The economy is projected to have expanded at a 3.3 percent annualized rate last quarter after shrinking at a 2.9 percent pace in the first three months of the year, according to the median forecast of economists surveyed by Bloomberg this month. Growth is projected to average 3.1 percent in the last six months of the year.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Victoria Stilwell in Washington at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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