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Consumer Prices in U.S. Rose 0.5% in February; Core Up 0.2%

Jalol Abdurahimov fills his vehicle with gasoline at a Royal Dutch Shell Plc filling station in Fairfax, Virginia. Photographer: Andrew Harrer/Bloomberg
Jalol Abdurahimov fills his vehicle with gasoline at a Royal Dutch Shell Plc filling station in Fairfax, Virginia. Photographer: Andrew Harrer/Bloomberg

March 17 (Bloomberg) -- The cost of living in the U.S. climbed more than forecast in February, led by the highest food prices since 2008 and rising fuel costs.

The consumer-price index increased 0.5 percent, the most since June 2009, figures from the Labor Department showed today in Washington. Economists projected a 0.4 percent gain, according to the median forecast in a Bloomberg News survey. Excluding volatile food and fuel costs, the so-called core gauge rose 0.2 percent for a second month, also more than estimated.

Retailers from Wal-Mart Stores Inc. to Gap Inc. are facing rising raw materials costs, which may erode profits and prompt businesses to try and recoup some of the expenses. While bigger grocery and fuel bills also strain household budgets, Federal Reserve policy makers this week said the upward pressure on inflation is expected to be “transitory.”

“The headline number is being driven by the usual suspects -- energy and food,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who correctly forecast the rise in the core CPI. “Strip those out and inflation is relatively subdued. Businesses are going to have a difficult time passing on the higher costs because consumers are still price-sensitive.”

The forecast gain in consumer prices was based on the median of 77 economists in a Bloomberg survey. Estimates ranged from gains of 0.2 percent to 0.6 percent.

The increase in the consumer price index included a higher prices for new vehicles, airfares and services.

Jobless Claims

Fewer Americans filed first-time claims for unemployment insurance payments for a third week in the last four, indicating progress in the labor market, another Labor Department report showed.

Applications for jobless benefits decreased 16,000 in the period ended March 12 to 385,000, in line with the median forecast in a Bloomberg News survey, Labor Department figures showed today. The four-week average of claims dropped to the lowest level since July 2008.

Stock-index futures held gains after the reports. The contract on the Standard & Poor’s 500 Index rose 1.5 percent to 1,272.2 at 8:49 a.m. in New York. Treasuries fell, pushing up the yield on the benchmark 10-year note to 3.25 percent from 3.17 percent.

Economists projected core gauge would rise 0.1 percent, according to the survey median.

Over 12 Months

Overall consumer prices increased 2.1 percent in the 12 months ended February, compared with a 1.6 percent year-over-year gain the prior month. The core CPI rose 1.1 percent from February 2010.

Energy costs increased 3.4 percent from a month earlier, the most since December. Gasoline prices jumped 4.7 percent after a 3.5 percent gain.

Food costs rose 0.6 percent, driven by meats, dairy products and fruits and vegetables.

Customers “recognize that in many cases they’re spending more money today than they were 30 days ago for items that are in their pantry,” Brian Cornell, chief executive officer of Bentonville, Arkansas-based Wal-Mart’s Sam’s Club chain, said March 8 at a conference.

Today’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, rose 0.1 percent. Mounting foreclosures are restraining homeownership, driving up demand for rental housing.

Medical Care

The cost of medical care increased 0.4 percent, the most since September.

Airfares increased 2.1 percent, the biggest gain since October, and new-vehicle prices rose 1 percent the most since October 2009.

Apparel costs declined 0.9 percent in February, the biggest decrease since July 2006, today’s report showed. San Francisco-based Gap, the largest U.S. apparel chain, is watching the price of raw materials.

“Like all apparel companies, we are dealing with the inflationary pressures from the increase in cotton pricing,” Glenn Murphy, chief executive officer, said in a Feb. 24 teleconference. “We have to acknowledge the fact there was going to be inflationary pressure being felt by ourselves and everybody else through 2011.” He said Gap was going to be “much smarter about our promotional decision making.”

The Fed on March 15 maintained its plan for so-called quantitative easing, under which it’ll complete a second round of bond purchases by June. The central bank indicated it will keep the benchmark interest rate near zero for an “extended period,” and said “longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.”

‘Firmer Footing’

“The economic recovery is on a firmer footing,” Fed officials said in a statement after their meeting. While “the recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation,” these effects are expected to be “transitory,” they said.

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

Data yesterday showed February producer prices climbed 1.6 percent, the most since June 2009, reflecting gains in fuel and the biggest jump in food costs since 1974. The core PPI, which excludes food and fuel, rose 0.2 percent, less than half the gain in January. Earlier this week, a report showed the cost of goods imported into the U.S. rose 1.4 percent, led by commodities.

To contact the reporter on this story: Shobhana Chandra at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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