Tag Archives: U.S. consumer prices

U.S. consumer prices post biggest annual gain in more than 39 years

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices rose further in November amid strong gains in the cost of food and a range of other goods, leading to the largest annual increase in more than 39 years and potentially giving the Federal Reserve ammunition to quickly wind down its bond purchases.

The report from the Labor Department on Friday followed on the heels of a slew of data this month showing a rapidly tightening labor market. With supply bottlenecks showing little sign of easing and companies raising wages as they compete for scarce workers, high inflation could persist well into 2022.

The increased cost of living, the result of shortages caused by the relentless COVID-19 pandemic, is hurting President Joe Biden’s approval rating. High inflation and a strengthening economy have raised the risk of an early Fed interest rate increase.

“The biggest problem for the Fed is the mounting evidence of a strong pick-up in cyclical price pressures,” said Paul Ashworth, chief economist at Capital Economics in Toronto.

“Although we think headline inflation has now peaked, it will decline only gradually over the first half of next year and, crucially, because of that building cyclical pressure we expect core inflation to remain above the Fed’s target for a prolonged period.”

The consumer price index rose 0.8% last month after surging 0.9% in October. The broad-based increase was led by gasoline prices, which rose 6.1%, matching October’s gain. With crude oil prices declining recently, gasoline prices have likely peaked.

Food prices rose 0.7%. The cost of food at home increased 0.8%, driven by increases in the price of fruits and vegetables, meat and cereals and bakery products. It also cost more to eat away from home.

In the 12 months through November, the CPI accelerated 6.8%. That was the biggest year-on-year rise since June 1982 and followed a 6.2% advance in October.

Economists polled by Reuters had forecast that the CPI would climb 0.7% and increase 6.8% on a year-on-year basis.

TIGHTENING LABOR MARKET

The government reported last week that the unemployment rate fell to a 21-month low of 4.2% in November. Tightening labor market conditions were underscored by a report on Thursday showing new applications for unemployment benefits dropped to the lowest level in more than 52 years last week.

Other data this week showed there were 11 million job openings at the end of October and Americans quit jobs at near-record rates.

“With supply shortages likely to stick around until next year and service-sector prices trending higher, inflation is going to get worse before it gets better,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Fed Chair Jerome Powell has said the U.S. central bank should consider speeding up the winding down of its monthly bond purchases at its policy meeting next week. Many economists are expecting an early Fed interest rate increase.

Excluding the volatile food and energy components, the CPI rose 0.5% last month after gaining 0.6% in October. The so-called core CPI was supported by rents, with owners’ equivalent rent of primary residence, which is what a homeowner would receive from renting a home, rising a solid 0.4%.

Prices for used cars and trucks increased 2.5% for a second straight month. New motor vehicle prices rose 1.1%, marking the eighth consecutive month of gains. A global semiconductor shortage has undercut motor vehicle production.

Airline fares rebounded 4.7%. But further increases are unlikely following the emergence of the Omicron variant of COVID-19, which could make some people hesitant to travel by air. The United States is already experiencing a resurgence in coronavirus infections, driven by the Delta variant.

The so-called core CPI jumped 4.9% on a year-on-year basis, the largest rise since June 1991, after increasing 4.6% in the 12 months through October.

The Fed tracks the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, for its flexible 2% inflation target. The core PCE price index surged 4.1% in the 12 months through October, the most since January 1991. Data for November will be released later this month.

“A continued trend higher in core inflation creates further hawkish risks for a Fed that has recently become more focused on the inflation side of its mandate, and suggests a rising likelihood of an even earlier first rate hike,” said Veronica Clark, an economist at Citigroup in New York.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)

U.S. consumer prices post biggest gain in 8-1/2 years as economy reopens

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer prices rose by the most in more than 8-1/2 years in March as increased vaccinations and massive fiscal stimulus unleashed pent-up demand, kicking off what most economists expect will be a brief period of higher inflation.

The report from the Labor Department on Tuesday also showed a firming in underlying prices last month as the broader reopening of the economy bumps against bottlenecks in the supply chain, capacity constraints and higher commodity prices.

Federal Reserve Chair Jerome Powell and many economists view higher inflation as transitory, with supply chains expected to adapt and become more efficient. The supply constraints mostly reflect a shift in demand towards goods and away from services during the pandemic, now in its second year.

“Inflation is a process and not a one-time event,” said Chris Low, chief economist at FHN Financial in New York. “These bottlenecks are one offs. The Fed will not consider action until it views price levels changes as permanent rather than temporary, something it does not consider possible until the economy is at full employment.”

The consumer price index jumped 0.6% last month, the largest gain since August 2012, after rising 0.4% in February. A 9.1% surge in gasoline prices accounted for nearly half of the increase in the CPI. Gasoline prices rose 6.4% in February.

Food prices edged up 0.1%. The cost of food consumed at and away from home also rose 0.1%.

Economists polled by Reuters had forecast the CPI advancing 0.5%. In the 12 months through March, the CPI surged 2.6%. That was the largest gain since August 2018 and followed a 1.7% increase in February.

The jump mostly reflected the dropping of last spring’s weak readings from the calculation. Those so-called base effects are expected to push up annual inflation even higher in the coming months before subsiding later this year.

Stocks on Wall Street were mostly higher. The dollar slipped against a basket of currencies. U.S. Treasury prices rose slightly.

UNDERLYING INFLATION FIRMING

Excluding the volatile food and energy components, the CPI increased 0.3% after nudging up 0.1% in February. The largest gain in seven months in the so-called core CPI was driven by a rise in rents as well as hotel and motel accommodation prices, which rebounded 4.4% after falling 2.7% in February.

The cost of hospital services increased 0.6%. But prescription medication prices were unchanged leading to overall healthcare costs edging up 0.1%. Used cars and trucks prices increased a solid 0.5%, but the cost new cars was unchanged for a second straight month. Motor vehicle production has been hampered by a global shortage of semiconductors.

Consumers also paid more for motor vehicle insurance as well as recreation and household furnishings. But apparel prices fell as did costs related to education.

The core CPI increased 1.6% on a year-on-year basis after rising 1.3% in February. The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target, a flexible average. The core PCE price index is at 1.5%.

The cost of services advanced 0.4% after rising 0.3% in February. The government reported last week that producer prices surged in March. With the CPI and PPI data in hand, economists at JPMorgan forecast the core PCE price index gained 0.4% in March after nudging up 0.1% in February. That would lift the year-on-year increase to 1.9% from 1.4% in February.

March’s strong inflation readings are in sync with several business surveys showing an acceleration in cost pressures.

Manufacturers are grappling with acute shortages of basic materials, rising commodities prices and difficulties in transporting finished goods.

Some economists argue the fractured supply chains, together with nearly $6 trillion in government relief since the COVID-19 pandemic barreled through the United States in March 2020 could fan inflation for a sustained period. The Fed has also slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through monthly bond purchases.

These economists also point to the business surveys, which have indicated that customer inventories are at record lows and order books are full. A survey from the NFIB on Tuesday showed just over a third of small businesses planned raising prices in March, noting that “low inventories and solid sales will create more opportunities to raise prices.”

“This suggests companies have strong pricing power that could allow them to expand profit margins after several years of margin compression, which could keep inflation higher for longer,” said James Knightley, chief international economist at ING in New York.

But labor market slack could make it harder for inflation to continue spiraling higher. Employment remains 8.4 million below its peak in February 2020. The extremely accommodative fiscal and monetary policy are also unlikely to keep inflation uncomfortably high, if history is a good predictor.

“Neither rapid money growth and record federal budget deficits have had any correlation with inflation over the past 40 years,” said David Berson, chief economist at Nationwide in Columbus, Ohio. “Additionally, the factors that have acted to keep inflation in check in recent decades – stable inflation expectations, increased use of technology, production movements to low-cost areas – all remain in place.”

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

Stocks climb for second day as data eases inflation jitters

By Chuck Mikolajczak

NEW YORK (Reuters) – A gauge of global stocks climbed for a second straight day on Wednesday to hit its highest level in a week, after a report on U.S. consumer prices indicated calmed recent concerns about inflation, while the dollar retreated further from a 3-1/2 month high.

Economic data from the Labor Department said its consumer price index rose 0.4% in February, in-line with expectations, after a 0.3% increase in January. Core CPI, which excludes the volatile food and energy components, edged up 0.1%, just shy of the 0.2% estimate, after being unchanged the prior two months.

“We will see what happens in terms of when inflation begins to pick up over the next couple of years, but the market seemed to like it OK today,” said Ellen Hazen, portfolio manager at F. L. Putnam Investment Management in Wellesley, Massachusetts.

While analysts largely expect a pickup in inflation as vaccine rollouts have led to a reopening of the economy, worries persist that additional stimulus in the form of a $1.9 trillion coronavirus relief package set to be signed by U.S. President Joe Biden could lead to an overheating of the economy and uncontrolled inflation.

“There are a lot of reasons why inflation could pick up over the next two to three years and the market is correct to be concerned about that, it might have gotten a little bit overly focused on it in the last couple of weeks,” said Hazen.

“But in general, the market is correct to be on alert for signs of rising inflation, particularly because of the stimulus and the size of the Fed balance sheet.”

The House of Representatives moved toward final approval of Biden’s $1.9 trillion COVID-19 relief bill on Wednesday, which forecasters predict will turbocharge the U.S. economy.

The data was enough to puncture recent concerns about rapidly rising inflation and provide support for stocks on Wall Street, which built on Tuesday’s strong rally.

The Dow Jones Industrial Average rose 332.58 points, or 1.04%, to 32,165.32, the S&P 500 gained 23.83 points, or 0.61%, to 3,899.27 and the Nasdaq Composite added 58.07 points, or 0.44%, to 13,131.89.

The yield on the benchmark 10-year note retreated in the wake of the data, before edging higher on the session and taking some of the early steam out of equity gains.

Investors will now eye auctions of 10-year and 30-year debt on Wednesday and Thursday, with investors seeking to cover massive shorts on both maturities. A weak 7-year auction in late February helped fuel inflation concerns and sent yields higher.

Benchmark 10-year notes last yielded 1.5438%, from 1.544% late on Tuesday.

The dollar also moved lower for a second day following the data before reversing course.

The dollar index rose 0.022%, with the euro down 0.04% to $1.1893.

Oil prices resumed their climb after two days of declines, extending gains after the Energy Information Administration reported a bigger-than-expected storage build. [nL1N2L81NJ]

U.S. crude recently rose 0.45% to $64.30 per barrel and Brent was at $67.82, up 0.44% on the day.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)

Muted U.S. inflation strengthens case for Fed rate cut

People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in May, pointing to moderate inflation that together with a slowing economy increased pressure on the Federal Reserve to cut interest rates this year.

But the report from the Labor Department on Wednesday will likely not shift Fed officials’ views that temporary factors are behind the weak inflation readings. Airline fares, among the transitory factors identified by Fed Chairman Jerome Powell, rebounded and apparel prices stabilized after two straight monthly decreases.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May that has led financial markets to price in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

“This soft inflation backdrop reinforces our call for two (rate) cuts later this year,” said Michael Feroli, an economist at JPMorgan in New York. “We think next week is probably too soon to expect that action, given that growth is still holding in and trade-related risks remain two-sided.”

The consumer price index edged up 0.1% last month as a rebound in the cost of food was offset by cheaper gasoline, the government said. The CPI gained 0.3% in April.

In the 12 months through May, the CPI increased 1.8%, slowing from April’s 1.9% gain. May’s rise in the CPI was broadly in line with economists’ expectations.

Excluding the volatile food and energy components, the CPI nudged up 0.1% for the fourth straight month, the longest such stretch since April 2017. The so-called core CPI was held down by a sharp decline in the prices of used cars and trucks as well as motor vehicle insurance.

In the 12 months through May, the so-called core CPI rose 2.0% after advancing 2.1% in April.

U.S. Treasury prices were trading mostly higher, while the dollar was little changed against a basket of currencies. Stocks on Wall Street slipped as the rate-cut hopes were overshadowed by investor anxiety over the U.S.-China trade war.

GROWTH SLOWING

U.S. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened further duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit at the end of this month in Japan.

Economists have warned that the tariffs will undercut the economy, which will celebrate 10 years of expansion in July, the longest in history. Powell said last week the Fed was closely monitoring the implications of the trade war on the economy and would “act as appropriate to sustain the expansion.”

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. Job growth slowed sharply in May. Manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product to increase at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

A survey of chief executive officers published on Wednesday showed unease about trade policy negatively impacting sales expectations as well as capital spending and hiring plans over the next six months.

The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, increased 1.6 percent in the year to April after gaining 1.5% in March. Data for May will be released later this month. The core PCE price index has been running below the Fed’s 2% target this year.

Gasoline prices fell 0.5% in May after rising 5.7% in April. Food prices rebounded 0.3% in May after dipping 0.1% in the prior month. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3% in May after rising 0.3% in April.

Healthcare costs increased 0.3%, matching April’s rise. That mirrored an increase in healthcare costs at the producer level, suggesting a pickup in the core PCE price index in May. There were gains in hospital and doctor fees. But prices for prescription medication fell 0.2%.

Apparel prices were unchanged in May after tumbling 0.8% in the prior month. They had declined for two months in a row after the government introduced a new method and data to calculate apparel prices. Economists expect the duties on Chinese goods to lift apparel prices in the coming months.

“That’s going to change with new tariffs on the way unless apparel companies can teach other nations to knit sweaters as well as Chinese workers can do,” said Chris Rupkey, chief economist at MUFG in New York.

Prices for used motor vehicles and trucks tumbled 1.4%. That was the largest drop since last September and marked the fourth straight monthly decrease. The cost of motor vehicle insurance fell 0.4%, the most since May 2007. The cost of recreation also decreased.

But prices for airline tickets rebounded 2.0% after falling for two straight months. Prices for household furnishings and new vehicles rose in May. Household furnishings prices are likely to trend higher in the coming months because of the duties on Chinese imports.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. inflation steadily firming; labor market strong

FILE PHOTO: People shop in Macy's Herald Square in Manhattan, New York, U.S., November 23, 2017. REUTERS/Andrew Kelly/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in June, but the underlying trend continued to point to a steady buildup of inflation pressures that could keep the Federal Reserve on a path of gradual interest rate increases.

Other data on Thursday showed first-time applications for unemployment benefits dropped to a two-month low last week as the labor market continues to tighten. The Fed raised interest rates in June for a second time this year and has forecast two more rate hikes before the end of 2018.

“U.S. inflation continues to drift gradually higher in response to a nearly fully employed economy, with some nudging from tariffs,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The Fed has every reason to pull the rate trigger again in October.”

The Labor Department said its Consumer Price Index edged up 0.1 percent as gasoline price increases moderated and the cost of apparel fell. The CPI rose 0.2 percent in May. In the 12 months through June, the CPI increased 2.9 percent, the biggest gain since February 2012, after advancing 2.8 percent in May.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, matching May’s gain. That lifted the annual increase in the so-called core CPI to 2.3 percent, the largest rise since January 2017, from 2.2 percent in May.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 percent in June.

The Fed tracks a different inflation measure, which hit the U.S. central bank’s 2 percent target in May for the first time in six years. Economists expect the personal consumption expenditures (PCE) price index excluding food and energy will overshoot its target.

U.S. financial markets were little moved by the data.

In another report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 214,000 for the week ended July 7, the lowest level since early May.

That suggests robust labor market conditions prevailed in early July. The economy created 213,000 jobs in June.

A tightening labor market and rising raw material costs are expected to push up inflation through next year. Manufacturers are facing rising input costs, in part because of tariffs imposed by the Trump administration on lumber, aluminum and steel imports.

So far, they have not passed on those higher costs to consumers. Fed officials have indicated they would not be too concerned with inflation overshooting its target.

Last month, gasoline prices rose 0.5 percent after increasing 1.7 percent in May. Food prices gained 0.2 percent, with food consumed at home rebounding 0.2 percent after falling 0.2 percent in May. Food prices were unchanged in May.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent last month after increasing by the same margin in May. But the cost of hotel accommodation fell 3.7 percent after rising 2.9 percent in May.

Healthcare costs advanced 0.4 percent, with the price of hospital services surging 0.8 percent. Healthcare prices gained 0.2 percent in May. Consumers also paid more for prescription medication last month.

Prices for new motor vehicles rose for a second straight month. There were also increases in the cost of communication, motor vehicle insurance, education and alcoholic beverages.

But apparel prices fell 0.9 percent after being unchanged in May. The cost of airline tickets declined for a third straight month. Prices of household furnishings and tobacco also fell last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)