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CPI hints at tame inflation
Closely watched measure of consumer prices edges up ahead of forecasts, but core rate comes in low.
July 16, 2004: 9:51 AM EDT

NEW YORK (CNN/Money) - U.S. consumer prices rose moderately in June and slightly ahead of Wall Street expectations, but the core rate of inflation slipped below forecasts and may help to mute concerns about inflation.

The Labor Department said Friday that the Consumer Price Index (CPI), the most widely used gauge of inflation, rose 0.3 percent. But the so-called core CPI, which strips out volatile food and energy costs, edged up a smaller-than-expected 0.1 percent in June.

Economists surveyed by Briefing.com had forecast a 0.2 percent gain, compared with 0.6 percent in May. Ex-food and energy, core CPI was forecast to rise 0.2 percent, matching May.

U.S. stock futures rose following the report after, indicating a bounce at the start of trading.

Inflation has moved into the limelight now as the global economic recovery and steep oil prices threaten to push up consumer price growth in much of the industrialized world.

However, the latest data from Europe and the United States has been soft, reinforcing expectations of gradual future hikes in U.S. interest rates and of lower chances for any hikes in Europe.

On Thursday, U.S. producer prices also showed some softness in June, easing unexpectedly.

Part of the pick-up in inflation has been attributed to "transitory" factors, namely high oil prices. So the rise in headline CPI should continue to slow.

"The headline reflects a 3.2 percent rise in gasoline prices. Natural gas and electricity prices were also much stronger than the PPI suggested. The good news is the 0.1 percent core, which supports the Fed's view that transitory factors have boosted inflation in recent months," Ian Shepherdson, chief U.S. economist with High Frequency Economic, wrote in a report.

Joel Naroff, chief economist with Naroff Economic Advisors, said in a note that Friday's muted gauge on inflation "should not pressure the Fed into raising rates at more than a measured rate."

"Consumer prices were reasonably well behaved in June, except of course for energy." he said. "Inflation is not out of control. That's the good news. The bad news is that it is at a rate that is now considered normal and the widespread nature of the price increases hints that the rate could rise even further. That means the Fed will continue raising rates until it gets back at least to neutral.

"Since neutral is in the 4 percent range, the FOMC still has a lot to do," he added.

The Federal Reserve last month raised interest rates to 1.25 percent from 1 percent, which had been the lowest level in more than 40 years. It was the first such increase since May 2000, and the agency indicated that it could be "measured" in raising rates in the future.

Outside the energy and the food sectors, analysts noted prices had fallen for accommodation, rents and airfares, while ongoing financing incentives for new cars sales should have kept vehicle prices from rising too dramatically.

Energy prices rose 2.6 percent in June after 4.6 percent in May. Gasoline prices rose 3.2 percent. Natural gas and fuel oil prices increased 4.4 percent.

Food prices increased 0.2 percent after a 0.9 percent gain in May. Housing prices rose 0.3 percent in June after 0.4 percent gains in April and May. Hotel prices fell 0.9 percent. Homeownership costs rose 0.2 percent. New car prices increased 0.2 percent, while airfares rose 0.7 percent.  Top of page


-- from staff and wire reports




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.