Consumer Prices in U.S. Increase on Jump in Gasoline Cost

The cost of living in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The retreat in fuel expenses this month signals inflation will hover around the Federal Reserve’s goal.

The consumer-price index was up 0.7 percent, the first increase in four months and the biggest since June 2009, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5 percent rise. The surge in gasoline accounted for almost 75 percent of last month’s total price advance.

Macy’s Inc. and Costco Wholesale Corp. are among companies offering price-reductions to attract more shoppers, helping to sustain gains in consumer spending. Limited ability to pass along higher costs of raw-materials such as fuel gives Fed policy makers room to keep pumping money into the economy to stimulate growth and trim the jobless rate.

“Consumer prices will be more moderate going forward,” said Laura Rosner, a U.S. economist at BNP Paribas in New York, the best forecaster of the consumer-price index over the past two years, according to Bloomberg data. “We certainly don’t expect another increase of this magnitude in gasoline costs. The Fed will look at the report and think inflation is moderate and not a concern.”

Manufacturing in the New York region expanded in March for a second month and industry managers grew more optimistic about the future, indicating the area’s factories are rebounding, another report showed today.

Manufacturing Gains

The Federal Reserve Bank of New York’s general economic index eased to 9.2 this month from 10 in February, which was the highest since May. Readings exceeding zero signal expansion in New York, northern New Jersey and southern Connecticut. A measure of manufacturers’ outlooks climbed to the highest level in almost a year.

Stock-index futures were little changed following the reports, after the Standard & Poor’s 500 Index yesterday moved within two points of its record high. The contract on the S&P 500 maturing in June rose less than 0.1 percent to 1,556.2 at 8:48 a.m. in New York.

Economists’ estimates in the Bloomberg survey ranged from gains of 0.2 percent to 0.7 percent.

Gasoline prices climbed 9.1 percent last month, also the biggest advance since June 2009. That drove a 5.4 percent gain in overall energy costs.

Gasoline Prices

Households may get relief as fuel expenses are cooling. The average cost of a gallon of regular gasoline, which surged to a four-month high of $3.79 on Feb. 26, was down almost 10 cents to $3.70 on March 13, according to AAA, the biggest U.S. auto club.

Food costs increased 0.1 percent after being little changed in January. They were up 1.6 percent over the past 12 months.

Excluding volatile food and fuel, the so-called core measure advanced 0.2 percent, matching the median forecast of economists surveyed by Bloomberg.

A 0.3 percent drop in new-car prices, the biggest since January 2010, restrained the index.

Overall consumer prices increased 2 percent in the 12 months ended in February, after a 1.6 percent year-over-year gain the prior month.

The core CPI also rose 2 percent from February 2012, following a 1.9 percent advance in the prior 12 month period.

Inflation’s Bite

The cost of living gain squeezed paychecks. Hourly earnings adjusted for inflation fell 0.6 percent. They were up 0.1 percent over the past 12 months.

Department-store chains may continue to hold the line on prices as they compete for customers. Macy’s “does really well at creating exciting promotional events to drive people into the store,” and will continue the strategy in 2013, Chief Financial Officer Karen Hoguet said in a March 13 conference presentation. J.C. Penney Co.’s is using offers such as $10 in-store coupons and 30 percent discounts off clearance items to revive sales.

Costco, the largest U.S. warehouse-club chain, is among retailers reporting limited price pressures except for beef, poultry and pork products, and freight costs. The Issaquah, Washington-based company has worked to lower its already-discounted prices to boost annual memberships.

“I am not hearing a lot of inflationary talk out there,” Richard Galanti, chief financial officer, said on a March 12 earnings conference call.

Limited price gains give Fed officials more room to continue steps to spur growth and trim the unemployment rate.

Fed’s View

Inflationary pressures were “modest,” the central bank said in its Beige Book report released March 6. “Most district contacts did not plan to increase prices.”

Policy makers, who track the price measure that is tied to consumer spending issued by the Commerce Department, have said their goal is to keep inflation at around 2 percent.

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.

Indexes for producer prices and import costs each climbed last month on higher energy expenses, reports showed this week.

(Updates with economist comment in fourth paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE