Consumer prices in US rose more than forecast in May

The cost of living in the United States rose more than forecast in May reflecting higher prices for everything from autos to hotel rooms, signalling raw-material expenses are filtering through to other goods and services.

The consumer-price index increased 0.2 per cent, compared with the 0.1 per cent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 per cent, the biggest increase since July 2008.

Higher input prices are leading companies like McDonald’s Corp and Abercrombie & Fitch Co to try to pass cost increases onto customers strained by more expensive gasoline and 9.1 per cent unemployment. At the same time, Federal Reserve Chairman Ben S Bernanke’s has repeated that the jump in commodity expenses will prove temporary.

“We’re seeing a broad-based bleed through of energy and commodity price pressures into components throughout the core,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston who correctly forecast the gain in core inflation. “The Fed has to be more adamant about their credibility as an inflation fighter.”

MANUFACTURING SHRINKS
Manufacturing in the New York region unexpectedly shrank in June, a sign factories continue to struggle following the disaster in Japan, another report today showed. The Federal Reserve Bank of New York’s general economic index dropped to minus 7.8, the lowest level since November, from 11.9 in May. Readings less than zero signal contraction in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

Stock-index futures extended earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.9 per cent to 1,273.2 at 8.50 am in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.07 per cent from 3.10 per cent late yesterday.