U.S. May Consumer Prices Rise 0.3%; Core Rate Up 0.2% (Update1)
6/16/98 9:4
(Adds computer prices in 14th paragraph, latest markets in
9th paragraph.)
Washington, June 16 (Bloomberg) -- U.S. consumer prices
edged higher in May, suggesting no danger of accelerating
inflation any time soon.
The consumer price index, the government's main barometer of
costs for goods and services, rose 0.3 percent last month, the
Labor Department said. The CPI rose 0.2 percent in April.
Excluding food and energy, the so-called core CPI rose 0.2
percent last month, after rising 0.3 percent in April. Prior to
the report, economists expected a 0.2 percent rise in both the
CPI and the core rate.
''Inflation remains extremely well-behaved,'' said Marilyn
Schaja, an economist at Donaldson, Lufkin & Jenrette in New York.
For the first five months of the year, the CPI rose at an
annual rate of 1.5 percent, up from a 1.4 percent increase at an
annual rate during the first five months of 1997. Also in the
first five months, the core CPI rose at a 2.7 percent rate, up
from a 2.6 percent increase during the first five months of last
year.
The year-to-date increase, though up a bit from 1997, ''is
still an amazingly low number,'' said David Resler, chief
economist at Nomura Securities Inc. in New York.
Affirming the Fed
That helps affirm the Federal Reserve's decision to leave
interest rates unchanged. The Fed's Open Market Committee has
kept the overnight bank lending rate at 5.50 percent since March
1997. Fed officials voted at their March 31 meeting to adopt a
''bias'' toward higher interest rates because the economy
continues to exceed its non-inflationary growth target of 2.5
percent.
Still, Fed Chairman Alan Greenspan told the Joint Economic
Committee of Congress last week that the U.S. economy is near
''price stability,'' and that persistent low inflation is one
reason market interest rates have fallen in recent weeks.
Bonds were little changed, holding onto earlier losses,
following the CPI report and a separate Commerce Department
report showing that housing starts fell 0.7 percent to a 1.53
million-unit annual rate in May. The U.S. Treasury's benchmark 30-
year bond fell almost a full point, pushing up its yield 6 basis
points to 5.63 percent.
Food, Energy Higher
Food prices jumped 0.6 percent in May, as the cost of fresh
vegetables rose 11.9 percent.
Energy prices, which account for about 10 percent of the
CPI, rose 0.3 percent in May, the first increase since September.
Oil prices, which had firmed in April, dropped in May and
have plunged since then. The price of crude oil for July delivery
traded on the New York Mercantile Exchange averaged $15.48 during
May, down from an average $16.08 in April. April's higher crude
prices, however, led to higher gasoline prices for motorists.
Department of Energy figures show the average price of a gallon
of unleaded gas rose about 5 cents over the first three weeks of
the month, before falling back.
A growing glut of oil pushed crude prices yesterday to their
lowest level in almost 12 years. Crude for July delivery fell 8.2
percent to $11.56 a barrel yesterday on the New York Mercantile
Exchange. In London trading earlier today, Brent crude oil
futures for August delivery rose as much as 1.9 percent above its
recent low amid expectations of further production cutbacks.
Computer prices fell 4.5 percent in May, following a 2.4
percent decline in April, and the biggest since a 5.8 percent
drop in February.
Shelter Costs Up
Housing costs rose 0.3 percent last month, including a 0.4
percent rise in shelter costs. The nation's hot real estate
market to produce higher prices for housing again, after an 0.4
percent gain in April's CPI.
In May, the National Association of Realtors reported
average prices rose for existing homes in all areas of the
country, with the nationwide average up $2,500 over the month.
''We're seeing some upward pressures, including some higher
homeownership costs,'' said Diane Swonk, deputy chief economist
at First Chicago, NBD. Still, ''you really won't see inflation
until the end of the year.''
Transportation service costs rose 0.1 percent in May, led by
a 0.8 percent increase in gasoline increase and a 1.2 percent
increase in used car prices. Those were offset by a 2.4 percent
drop in air fares and a 0.3 percent decline in new vehicle
prices.
Incentives averaging $1,500 a vehicle helped U.S. auto sales
reach their highest level in 11 years during May, good for
automakers and consumers. ''There were tremendous automobile
rebates and incentives in May, which should have resulted in
lower automobile prices to the consumer, said Schaja of DLJ.
Health Care Rising
Medical care costs rose 0.3 percent last month, pushed
higher by a 1.0 percent increase in prescription drug prices. A
Labor Department spokesman said the increase wasn't related to
the one-time rise in tranquilizer drug prices that pushed the May
producer price index higher.
Watson Wyatt Worldwide, the benefits consulting firm, said
large businesses will see health care premiums rise as much as 7
percent next year. Health maintenance organization coverage and
premiums for less restrictive forms of health coverage will go up
even more.
That compares with HMO premium increases of between zero and
3 percent in 1997, Watson Wyatt said.
''Last year, HMOs asked for 5 percent or more, but backed
down to preserve market share,'' said Richard Sinni, health-care
practice leader in Watson Wyatt's New York office. ''We don't
expect that level of flexibility this year,'' he said.
Commodity Price Outlook
Falling commodities prices are also contributing to the
benign inflation outlook. The Commodities Research Bureau index
fell 4.7 percent to a five-year low in May. The Goldman Sachs'
industrial metals index fell 7.6 percent over the same period.
One element in that index, copper, fell 9 percent, as prices
dropped to 77 cents a pound. That decline has continued; copper
futures for July delivery on the New York Mercantile Exchange
fell more than 2 cents a pound to 73.30 cents yesterday.
Electrical wire manufacturer Essex International Inc. of
Fort Wayne, Indiana said last month that aggressive price-cutting
in the industry would lower second-quarter profit by as much as
30 percent from a year earlier.
Tobacco prices rose 1.7 percent after April's 3.8 percent
increase.
Tobacco companies, including Philip Morris Cos. and RJR
Nabisco Holdings Corp. boosted wholesale cigarette prices by 5
cents a pack in early May to pay for the settlement of
Minnesota's lawsuit against the industry.
The price increase, the fifth in the last 11 months, was
expected to raise the average cost per pack by 3.5 cents.
''However, any price run-up caused by this factor should be
viewed as a special event and not an indication of a faster
underlying trend inflation rate,'' said Stephen Slifer, chief
economist at Lehman Brothers Inc. in New York. |
