Dec. 14 -- U.S. consumer prices rose the most in more than two years in November on record energy costs, reinforcing the Federal Reserve's concern that inflation remains a risk to the economy.
The consumer price index increased 0.8 percent after a 0.3 percent gain in October, the Labor Department said today in Washington. Prices excluding food and energy climbed 0.3 percent, also more than anticipated. A separate report showed industrial production rose after falling in October.
The figures may reignite concern that inflation will accelerate as higher energy costs filter through to other goods and services. That leaves less room for the Fed to cut interest rates should the credit crisis intensify and the economy falter, economists said.
``There is no question inflation is going to remain a concern for policy makers,'' said David Resler, chief economist at Nomura Securities International Inc. in New York, who correctly forecast the increase in core prices. ``This certainly will give some policy makers pause about the advisability and desirability of further rate cuts.''
Economists surveyed by Bloomberg News forecast consumer prices would rise 0.6 percent, according to the median of 80 estimates. Estimates ranged from gains of 0.4 percent to 1 percent. Prices excluding food and energy were forecast to rise 0.2 percent, according to the Bloomberg survey.
Treasury Yields
Treasuries initially dropped after the report, sending 10- year note yields to the highest in a month, then recouped most of the losses. Ten-year yields rose to 4.21 percent at 9:26 a.m. in New York, from 4.20 percent late yesterday.
Consumer prices increased 4.3 percent in the 12 months to November, the most since June 2006. The monthly gain was the biggest since September 2005.
The core rate increased 2.3 percent in the 12 months to November, up from a 2.2 percent October year-over-year gain.
``Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation,'' Fed policy makers said in a statement this week announcing a quarter-point reduction in the benchmark interest rate to 4.25 percent. Policy makers also inflation risks remained.
Inflation also accelerated in Europe. Prices in the 13- nation area rose 3.1 percent in November from the same month last year, the most since May 2001 as food prices soared.
Industrial Production
U.S. industrial production increased 0.3 percent in November, exceeding the median forecast of 0.2 percent, after a 0.7 percent drop that was bigger than previously estimated, Fed figures showed today.
The U.S. consumer-price report showed energy prices jumped 5.7 percent, after a 1.4 percent increase in the prior month. Gasoline prices climbed 9.3 percent and fuel oil costs jumped 14.2 percent, the most since February 2003.
Crude oil prices on the New York Mercantile Exchange averaged $94.63 a barrel last month compared with $85.66 in October. The cost reached a record $99.29 a barrel on Nov. 21. Regular gasoline at the pump exceeded $3 a gallon for most of November, according to the American Automobile Association.
U.S. carriers boosted ticket prices seven times since Sept. 1 to combat rising jet-fuel prices. The latest attempt was rolled back Dec. 3 after Continental Airlines Inc. decided against an increase, suggesting a slowing economy may rein in prices in coming months.
Oil Costs
High oil prices are ``one of the top challenges facing the industry today,'' Tom Horton, chief financial officer of AMR Corp., parent of American Airlines, said last week at a conference.
Others are making increases stick. Kroger Co., the biggest U.S. grocery chain, this week said it charged shoppers more to recoup higher costs for cereal and cheese, helping boost third- quarter profit by 18 percent.
The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.
Apparel, prescription drugs, hospital services and airfares led the increase in the cost of living last month.
Food prices, which account for about a fifth of the CPI, increased 0.3 percent for a second month.
Renting Costs
Rents, which make up almost 40 percent of the core CPI, also rose. A category designed to track rental prices for owner- occupied homes rose 0.3 percent, compared with a 0.2 percent increase the month before.
Slowing growth will help damp price pressures, economists said. The Fed's preferred gauge of inflation, which is tied to consumer spending and excludes food and energy costs, will rise 1.8 percent in 2008 after a 1.9 percent gain this year, according to the median estimate of economists surveyed by Bloomberg this month. The measure would be within the range forecast by policy makers.
Economic growth will slow to a 1 percent pace this quarter, a fifth the rate of the previous three months, the Bloomberg monthly survey said. Economists also trimmed estimates for the first quarter of 2008 to 1.5 percent.
Other price reports also reflected surging fuel bills. Wholesale prices rose 3.2 percent in November, the biggest jump in 34 years, the Labor Department reported yesterday. The increase was driven by a record one-month gain in energy costs. Excluding food and fuel, producer prices rose 0.4 percent.
The two reports reflect differences in timing. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.
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