Core consumer prices in U.S. increased less than forecast in May

WASHINGTON – The cost of living in the U.S. excluding food and fuel rose less than forecast in May, a sign inflation may take time to meet the Federal Reserve’s goal.

The so-called core measure increased 0.1 percent, the smallest gain this year, after climbing 0.3 percent in April, Federal Reserve figures showed Thursday in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.2 percent rise. The overall consumer-price index advanced 0.4 percent, as fuel costs rebounded.

Declining costs for used cars and trucks, clothing and hotel stays combined with a deceleration in health care expenses held back the core index, swamping advances in rents. Fed policy makers, who ended a meeting Wednesday to assess when to begin raising interest rates, reiterated they see price gains gradually progressing toward their target.

“It’s too early to be confident about inflation,” Thomas Costerg, a senior economist at Standard Chartered Bank in New York, said before the report.

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Other reports showed fewer Americans than forecast filed claims for jobless benefits last week and the current account deficit widened in the first three months of the year.

The number of applications for unemployment insurance payments declined by 12,000 in the week ended June 13 to 267,000, the fewest since early May, according to data from the Labor Department.

Current account

The deficit on the current account, which is the broadest measure of trade because it includes international financial transactions, increased to $113.3 billion in the first quarter, the widest in almost three years, from $103.1 billion at the end of 2014.

The median forecast for total prices of 84 economists surveyed by Bloomberg called for a 0.5 percent gain. Estimates ranged from gains of 0.2 percent to 0.7 percent.

Overall consumer prices were little changed in the 12 months ended in May, after a 0.2 percent year-over-year decline the prior month.

The core CPI measure increased 1.7 percent from May 2014, after a 1.8 percent rise in the prior 12-month period.

The median projection in the Bloomberg survey called for the core gauge to rise 0.2 percent from April, and to climb 1.8 percent from the prior year. Estimates for the monthly figure ranged from gains of 0.1 percent to 0.3 percent.

Energy costs increased 4.3 percent from a month earlier, the report showed, while food prices were little changed for a second month.

Falling prices

The cost of clothing and used cars and trucks in May showed the biggest drop this year, and hotel rates declined by the most since October 2013.

Expenses for medical care increased 0.2 percent after a 0.7 percent increase in April.

The Fed’s preferred gauge of inflation, linked to consumer spending, hasn’t been above the central bank’s 2 percent goal since March 2012. It climbed by 0.1 percent in April from a year earlier, the smallest 12-month gain since October 2009. The Commerce Department will release the May figure on June 25.

The recent stabilization in energy costs is helping underpin inflation. Oil prices have rebounded from a six-year low as falling U.S. stockpiles and a slowdown in drilling counter data showing that producers elsewhere are pumping more.

Fed officials, concluding their two-day meeting on Wednesday, said inflation will probably remain near its recent low level in the near term. Still, they expect it to “rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate,” according to the central bank’s statement.

Yellen’s view

Chair Janet Yellen, at a press conference after the meeting, said the big declines in energy prices toward the end of 2014 are not going to wash out of the inflation data until later this year, though the recent steadying is encouraging.

“The fact that energy prices have stabilized means the pressure from that source is diminishing,” she said.

Companies are having mixed success trying to charge customers more.

Revlon Inc., the cosmetics maker, started increasing prices in the second half of last year, executives said on a May 7 earnings call.

Ann Inc., owner of the Ann Taylor and Loft women’s clothing stores, is among retailers using discounts to attract shoppers. Severe weather, soft traffic and the highly competitive retail environment in the first quarter caused the company to offer more promotions than planned, executives said on an earnings conference call on May 22.

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.

Wholesale prices advanced 0.5 percent in May, while the import cost gauge climbed 1.3 percent from the prior month.

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