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Posted on April 15, 2011
The cost of living in the U.S. rose in March for a ninth consecutive month, led by increases in food and fuel costs that have yet to filter down to other goods and services.
The consumer-price index increased 0.5 percent for a second month, in line with the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. Excluding volatile food and energy, the so- called core gauge rose 0.1 percent, less than forecast and restrained by lower clothing expenses and smaller gains in medical care.
Unemployment at 8.8 percent and stagnant wage growth mean retailers and service providers will have a hard time passing price increases along to customers. Rising food and gasoline prices are limiting consumer purchases of other goods, slowing the economic recovery.
“Retail and service-sector companies lack pricing power,” Neil Dutta, an economist at Bank of America Merrill Lynch in New York, said before the report. “With incomes weak, consumers will spend more on commodities and have less for everything else.”
Forecasts for consumer prices in the Bloomberg survey of 82 economists ranged from gains of 0.3 percent to 0.9 percent.
Economists projected the core gauge would rise 0.2 percent, according to the survey median. The 0.1 percent increase last month was the smallest since December.
Prices increased 2.7 percent in the 12 months ended March, the biggest year-to-year gain since December 2009. The core CPI rose 1.2 percent from March 2010. As recently as October, the year-over-year gain had slowed to 0.6 percent, the smallest since records began in 1958.
Rising prices have prompted economists surveyed by Bloomberg to lower their forecasts for inflation-adjusted consumer spending. Purchases increased at a 2 percent annual rate in the first quarter after a 4 percent gain in the last three months of 2010.
Gains in food and energy prices have reflected increased demand from fast-growing economies such as Brazil, China and India. The cost of a gallon of regular gasoline at the pump averaged $3.54 in March, up from $3.18 the prior month, according to data from AAA, the nation’s largest motoring group.
Energy costs increased 3.5 percent from a month earlier, the most since December. Gasoline prices increased 5.6 percent.
Food costs rose 0.8 percent, the biggest increase since July 2008.
The cost of medical care increased 0.2 percent after a 0.4 percent increase the prior month. Apparel costs dropped 0.5 percent in March after a 0.9 percent decrease a month earlier.
Some companies are saying they will test the waters on price increase later this year.
“We are now seeing significant cost price inflation, which will manifest itself late in 2011, particularly in raw materials such as cotton and wool,” R. Neal Black, chief executive officer of Jos. A. Bank Clothiers Inc. said in a March 31 teleconference. “The result will be selected retail price ticket increases throughout 2011, testing the customer’s capacity to absorb small increases.”
The Federal Reserve last month reiterated a plan to complete a second round of bond purchases that’ll pump $600 billion into the financial system by June.
The Group of 24, which groups countries from Africa, Asia and Latin America, yesterday said “overly expansionary” monetary policy in advanced economies was fueling inflation in emerging economies. The group was meeting on the sidelines of a G-20 meeting in Washington.
Faced with rising gasoline prices, Ford Motor Co. (F), the second-largest U.S. carmaker, has been able to sell more fuel- efficient vehicles at higher prices.
“In the first two months of 2011, average transaction prices for Ford brand vehicles were almost 3 percent higher than the same period a year ago,” Ken Czubay, vice president for U.S. marketing and sales, said on a March 1 conference call. “History tells us that fuel economy increases in importance when gasoline prices rise.”
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.
Import prices rose 2.7 percent last month, the most since June 2009, led by the biggest jump in food costs since 1994, the Labor Department said April 12.
Data from the Labor Department yesterday showed March producer prices climbed 0.7 percent, less than forecast.
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