June 14 (Bloomberg) -- The cost of living in the U.S. fell in May by the most in more than three years as fuel prices retreated, buttressing Federal Reserve projections that cheaper commodities will help reduce inflation.
The consumer-price index declined 0.3 percent,
more than forecast and the biggest drop since December 2008, after no
change the prior month, the Labor Department reported today in
Washington. Economists projected a 0.2 percent decrease, according to
the median estimate in a Bloomberg News survey. The so-called core
measure, which excludes more volatile food and energy costs, increased
0.2 percent for a third month.
Cheaper energy costs may
provide some relief for Americans against a backdrop of moderating job
and wage gains that has slowed consumer spending. With inflation
cooling, Fed policy makers also have more flexibility to take further
action to bolster U.S. economic growth.
“The drop in the
headline is encouraging for the Fed because it shows gasoline prices
are less of strain on consumers’ incomes, which means they can pick up
spending in the summer months,” said Jeffrey Greenberg, an economist at
Nomura Securities International LLC in New York, who correctly forecast
the decline in prices. “Unemployment is the Fed’s big concern. They
aren’t worried about inflation going out of control.”
Estimates from 78 economists ranged from a decrease of 0.6 percent to an increase of 0.2 percent.
Another Labor Department report showed first-time claims for jobless
benefits unexpectedly climbed by 6,000 to 386,000 in the week ended
June 9 from a revised 380,000 the prior week that was more than first
estimated. Economists projected claims would fall to 375,000, according
to the median estimate.
futures were little changed after the labor market figures. The
contract on the Standard & Poor’s 500 Index maturing in September
rose 0.1 percent to 1,310.2 at 8:47 a.m. in New York.
Consumer prices increased 1.7 percent in the 12 months ended in May,
the smallest 12-month gain since January 2011, the report showed.
Core prices were up 2.3 percent for year through May, matching the gains for the 12 months ended in April and March.
The drop in prices allowed Americans to stretch their paychecks further
in May, another Labor Department report showed today. Hourly earnings
adjusted for prices climbed 0.3%, the biggest increase since April
2010. Real wages were down 0.1 percent over the past 12 months.
Today’s data showed energy costs decreased 4.3 percent from a month
earlier, the largest decline since December 2008. Gasoline prices
slumped 6.8 percent, and the costs of natural gas and fuel oil also
Compared with May 2011, energy costs fell 3.9 percent, the first year-over-year decrease since October 2009.
Food costs were unchanged as gains in fruit and vegetables were offset by cheaper beverages, dairy products and meats.
The increase in the core measure was driven by increases in costs for
shelter, medical care, cars and airfares. Medical care costs advanced
by the most since October.
Shelter costs rose 0.2 percent,
and owners’ equivalent rent increased 0.1 percent. Prices for stays at
hotels and motels climbed 1.8 percent.
Fed policy makers,
who said they anticipated the run-up in energy costs would subside, aim
for 2 percent inflation as part of their dual mandate of stable prices
and maximum employment. Their preferred price gauge, issued by the
Commerce Department and tied to consumer spending, rose 1.8 percent in
the 12 months ended in April, the smallest gain in more than a year.
Fed Vice Chairman Janet Yellen said last week she sees more scope for
easing, while San Francisco Fed President John Williams, a voting
member of the FOMC this year, called on policy makers to stand ready to
act should the recovery falter.
“Substantial resource slack
in U.S. labor and product markets should continue to restrain
inflationary pressures,” Fed Chairman Ben S. Bernanke told Congress’s
Joint Economic Committee last week. With a “subdued” inflation outlook,
high unemployment and “strains in global financial markets,” the
central bank anticipates it will keep its benchmark lending rate near
zero though late 2014, he said.
Labor Department figures
showed June 1 that U.S. employers in May added the fewest workers in a
year, further restraining consumers’ buying power. Average hourly
earnings rose 1.7 percent in May from the same month last year, the
smallest increase since December 2010.
The Federal Open Market Committee, which sets the course of central
bank policy, meets in Washington next week. Inflation below their
target gives them more room to ease should they choose to address the
cooling U.S. expansion and the widening debt crisis in Europe.
Inflation expectations have “definitely come down,” David Tehle, chief
financial officer of Dollar General Corp., said during a June 4
earnings call. The Goodlettsville, Tennessee- based dollar-store chain
anticipates 0.5 percent inflation for the full year, compared with 2
percent in the final three months of 2011, Tehle said.
Dollar General expects no apparel inflation this year and sees broad
slowing in commodity prices, Chief Executive Officer Rick Dreiling said
during the call.
A Labor Department report yesterday showed
prices paid to producers dropped 1 percent in May, the most since July
2009. Import prices in the U.S., reported June 12, dropped 1 percent.
The CPI is the broadest of the three monthly price measures from the
Labor Department because it includes goods and services. About 60
percent of the CPI covers prices consumers pay for services ranging
from medical visits to airline fares and movie tickets.
To contact the reporter on this story: Alex Kowalski in Washington at email@example.com
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.org
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