Consumer Prices in U.S. Rise Less Than Forecast 0.2%

May 14 (Bloomberg) -- U.S. consumer prices rose less than forecast in April, reflecting cheaper furniture and lodging costs that offset the biggest jump in food expenses in 18 years.

The consumer price index increased 0.2 percent after a 0.3 percent gain in March, the Labor Department said today in Washington. So-called core prices, which exclude food and energy costs, climbed 0.1 percent, compared with a 0.2 percent advance a month earlier.

Companies are holding down prices to attract customers after the economy grew at the slowest pace since the last recession over the last two quarters. Smaller gains in core prices are welcome news for Federal Reserve policy makers, who last month said uncertainty about the outlook for inflation was ``high.''

``It does look like you're starting to get some real improvement here,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``It's good news for the Fed.''

Treasuries, which had fallen earlier in the day, erased losses after the report. Ten-year note yields were at 3.91 percent at 8:33 a.m. after rising as high as 3.97 percent earlier today.

Economists' Forecasts

Economists forecast that the consumer price index would increase 0.3 percent, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from increases of 0.1 percent to 0.7 percent.

Excluding food and energy costs, prices were projected to rise 0.2 percent.

Prices rose 3.9 percent in the 12 months ended in April, down from a 4 percent year-over-year gain in March. The core rate increased 2.3 percent from April 2007, after increasing 2.4 percent in the 12 months ended in March.

Today's report showed energy expenses were unchanged after a 1.9 percent increase in March as gasoline prices dropped 2 percent. Fuel oil costs jumped 4.4 percent and natural gas prices climbed 4.8 percent.

The decrease in gasoline prices reflects government efforts to adjust the numbers for seasonal variations, Dana Saporta, an economist at Dresdner Kleinwort in New York, said before the report. The increase in prices at the pump was smaller than usual during April, causing the adjustment process to show a drop.

Energy Costs

Energy costs have climbed this month and likely will continue to be a threat to inflation. Crude oil on the New York Mercantile Exchange touched a record $126.98 a barrel yesterday and the average cost of regular gasoline reached an all-time-high of $3.73 this week, according to AAA.

Food prices, which account for about a fifth of the CPI, jumped 0.9 percent, the most since January 1990. The increase was paced by rising costs for fresh fruits and pork.

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.

New vehicle prices dropped 0.2 percent and airline fares fell 0.5 percent. Costs for home furnishings and operations fell 0.1 percent, while the cost of staying at a hotel dropped 1.9 percent.

Clothing costs increased 0.5 percent.

Air Fares

Air fares may climb in coming months. The jump in energy costs prompted Delta Air Lines Inc., the third-largest U.S. carrier, to raise the fuel surcharge on round-trip flights this month by $20. The four other largest airlines followed suit within days. The surcharge is now more than the base fare on some short domestic flights.

The central bank can't be ``complacent about inflation,'' Janet Yellen, president of the Fed Bank of San Francisco, said in a speech yesterday. Recent measures of consumers' outlook for prices ``highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility,'' she said.

Yellen also said she anticipates inflation will slow as the labor market weakens and ``commodity prices level off,'' echoing comments by other policy makers.

Cleveland Fed President Sandra Pianalto, Kansas City Fed President Thomas Hoenig and the Dallas Fed's Richard Fisher also said yesterday there were concerned about rising prices.

Rate Outlook

Investors project the Fed will keep the benchmark interest rate unchanged at its next meeting on June 25. That would be the first pause since the central bank started cutting rates in September.

Rising prices from overseas, reflecting the drop in the dollar, are another source of concern. U.S. businesses have leeway to boost prices as companies abroad charge more.

The government said yesterday that prices of imported goods rose 1.8 percent in April and were up 15.4 percent in the last 12 months, the most since records began in 1982.

Labor's report on wholesale prices is due May 20.

Some companies are lowering prices to attract customers as the economy slows.

Wal-Mart Stores Inc., the world's largest retailer, yesterday reported higher quarterly profit and said earnings may trail analysts' estimates after record gasoline prices buffeted consumers. The Bentonville, Arkansas-based company discounted some items as much as 30 percent to drum up demand.

``There are still uncertainties about the rest of the year,'' H. Lee Scott, Wal-Mart's chief executive officer, said on a recorded call. ``The economy is playing a critical factor in 2008. Customers are focusing on food and daily use items.''

The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, according to Commerce Department data. Economists surveyed by Bloomberg News forecast growth would slow to 0.1 percent from April through June and consumer spending would advance at a 0.5 percent pace, the smallest increase in 17 years.

Source: Bloomberg.com