U.S. Economy: Consumer Prices Rise on Fuel, Food Costs

U.S. Consumer Prices Increase 0.4%
Excluding volatile food and energy, the so called core gauge rose 0.2 percent. Photographer: Daniel Acker/Bloomberg

The cost of living in the U.S. rose in April, led by increases in food and fuel that are starting to filter through to other goods and services.

The consumer-price index increased 0.4 percent, matching the median forecast of economists surveyed by Bloomberg News and following a 0.5 percent advance in March, figures from the Labor Department showed today in Washington. Excluding food and energy, the so-called core gauge rose 0.2 percent.

Another report showed consumer sentiment climbed more than forecast this month, signaling improving job prospects will help sustain spending even as household expenses climb. The pickup in inflation has yet to concern some Federal Reserve policy makers, including Chairman Ben S. Bernanke, who predict the acceleration will be temporary.

“Inflation is starting to bubble underneath the surface,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut. “The Fed is still pretty relaxed about inflation but we may get to a point in the next few months when policy makers will have to think a little more seriously about it.”

Stocks retreated as shares of financial and technology companies dropped. The Standard & Poor’s 500 Index decreased 0.8 percent to 1,337.77 at the 4 p.m. close in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.17 percent from 3.22 percent late yesterday.

Sentiment Improves

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 72.4, a three-month high, from a final reading of 69.8 in April, the group reported today. The gauge was projected to rise to 70, according to the median forecast of 62 economists surveyed by Bloomberg.

The increase was driven by the component gauging expectations for six months from now, which rose to 67.4 from 61.6, the biggest jump since September 2009. The measure more closely projects the direction of consumer spending, according to economists.

Growing optimism about jobs led to the improvement as 31 percent of respondents said they had heard employment was improving, the most since 1983, according to an e-mailed note from economists at Barclays Capital Inc. in New York.

The University of Michigan’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, fell to 80.2 from 82.5 the prior month.

Forecasts for consumer prices in the Bloomberg survey of 76 economists ranged from gains of 0.3 percent to 0.7 percent.

Year-Over-Year Gain

Prices increased 3.2 percent in the 12 months ended April, the biggest year-over-year gain since October 2008. The core CPI rose 1.3 percent from April 2010, the most since February 2010.

“There clearly has been some acceleration, even at the core level,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York, who accurately forecast the overall April gain. “The Fed is happy to see core inflation move back up a bit, but I suspect they’d almost like to see it move a little slower. The numbers are still pretty tame.”

Improving job prospects and a growing economy may make it easier for companies like Colgate-Palmolive Co. to pass rising costs on to customers. Ian Cook, the company’s chief executive officer, said yesterday that the New York-based toothpaste maker is not seeing consumers resist higher pricing. Cook spoke at a conference sponsored by Goldman Sachs Group Inc.

Energy Costs

Energy costs increased 2.2 percent from a month earlier, and have climbed at a 39 percent annual rate so far this year, today’s report showed. Gasoline prices increased 3.3 percent from the prior month, and food costs rose 0.4 percent.

Commodities excluding food and fuel climbed 0.4 percent in April, the biggest advance since October 2009, showing cost increases are broadening.

The core rate was pushed up by increases in new and used automobiles and medical care, which rose 0.4 percent.

Commodity prices have retreated since the end of April, on concern rising interest rates in countries from China to India will slow the global economic recovery. Crude oil has dropped 13 percent from the end of April to yesterday on the New York Mercantile Exchange.

The declines support Bernanke’s views on inflation. The Fed chairman and some of his colleagues, including Vice Chairman Janet Yellen and Federal Reserve Bank of New York President William C. Dudley, have said in recent speeches that the threat from accelerating prices will prove “transitory.”

“Measures of underlying inflation, though having increased modestly in recent months, remain subdued, and longer-term inflation expectations have remained stable,” Bernanke said last month at a press conference in Washington.

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