WASHINGTON – The cost of living in the U.S. climbed more than forecast in February, led by the highest food prices since 2008 and rising fuel costs that some firms may be starting to pass along.
The consumer-price index increased 0.5 percent, the most since June 2009, figures from the Labor Department showed on Thursday. Economists projected a 0.4 percent gain, according to the median forecast in a Bloomberg News survey. Excluding volatile food and fuel costs, the so-called core gauge rose 0.2 percent for a second month, also more than estimated.
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Retailers from Wal-Mart Stores Inc. to Gap Inc. are facing rising raw materials costs, which may erode profits and prompt businesses to try and recoup some of the expenses. While bigger grocery and fuel bills also strain household budgets, Federal Reserve policy makers this week said the upward pressure on inflation is expected to be “transitory.”
“We are starting to see the makings of some pass-through of the higher costs, albeit very light,” Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, said before the report. “From the Fed’s perspective, core inflation is still relatively contained. It’s a modest economic recovery” so far.
The forecast gain in consumer prices was based on the median of 77 economists in a Bloomberg survey. Estimates ranged from gains of 0.2 percent to 0.6 percent.
The increase included a higher prices for new vehicles, airfares and services.
Fewer Americans filed first-time claims for unemployment insurance payments for a third week in the last four, indicating progress in the labor market, another Labor Department report showed.
Jobless Claims
Applications for jobless benefits decreased 16,000 in the period ended March 12 to 385,000, in line with the median forecast in a Bloomberg News survey, Labor Department figures showed on Thursday. The four-week average of claims dropped to the lowest level since July 2008.
Economists projected core gauge would rise 0.1 percent, according to the survey median.
Overall consumer prices increased 2.1 percent in the 12 months ended February, compared with a 1.6 percent year-over- year gain the prior month. The core CPI rose 1.1 percent from February 2010.
Energy costs increased 3.4 percent from a month earlier, the most since December. Gasoline prices jumped 4.7 percent after a 3.5 percent gain.
Food Prices
Food costs rose 0.6 percent, driven by meats, dairy products and fruits and vegetables.
Customers “recognize that in many cases they’re spending more money today than they were 30 days ago for items that are in their pantry,” Brian Cornell, chief executive officer of Bentonville, Arkansas-based Wal-Mart’s Sam’s Club chain, said March 8 at a conference.
Thursday’s report also showed owners-equivalent rent, one of the categories designed to track rental prices, rose 0.1 percent. Mounting foreclosures are restraining homeownership, driving up demand for rental housing.
The cost of medical care increased 0.4 percent, the most since September.
Airfares increased 2.1 percent, the biggest gain since October, and new-vehicle prices rose 1 percent the most since October 2009.
Raw Materials
Apparel costs declined 0.9 percent in February, the biggest decrease since July 2006, Thursday’s report showed. San Francisco- based Gap, the largest U.S. apparel chain, is watching the price of raw materials.
“Like all apparel companies, we are dealing with the inflationary pressures from the increase in cotton pricing,” Glenn Murphy, chief executive officer, said in a Feb. 24 teleconference. “We have to acknowledge the fact there was going to be inflationary pressure being felt by ourselves and everybody else through 2011.” He said Gap was going to be “much smarter about our promotional decision making.”
The Fed on March 15 maintained its plan for so-called quantitative easing, under which it’ll complete a second round of bond purchases by June. The central bank indicated it will keep the benchmark interest rate near zero for an “extended period,” and said “longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.”
‘Firmer Footing’
“The economic recovery is on a firmer footing,” Fed officials said in a statement after their meeting. While “the recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation,” these effects are expected to be “transitory,” they said.
The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the smallest in five decades of record-keeping. Policy makers aim for long-run overall inflation of 1.6 percent to 2 percent.
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.
Data yesterday showed February producer prices climbed 1.6 percent, the most since June 2009, reflecting gains in fuel and the biggest jump in food costs since 1974. The core PPI, which excludes food and fuel, rose 0.2 percent, less than half the gain in January. Earlier this week, a report showed the cost of goods imported into the U.S. rose 1.4 percent, led by commodities.
