Higher Housing Costs Pushed Consumer Prices Up in June
A closely watched barometer of inflation grew at a strong pace in June but shed little light on whether the Federal Reserve would increase interest rates again next month. While the Labor Department reported yesterday that core consumer prices had the largest sustained rise since 1995, Ben S. Bernanke, the Fed chairman, sounded a less-than-hawkish tone on inflation in testimony on Capitol Hill. Without a more declarative position from Mr. Bernanke, economists were left to speculate whether the Fed may pause when it meets next month or approve its 18th consecutive increase in interest rates. The Labor Department reported that the core Consumer Price Index, which does not include food and energy prices, rose by 0.3 percent in June, its fourth consecutive increase. That was a larger increase than economists expected, and represented the longest period of high inflation in the core rate since the first four months of 1995. Over all, consumer prices rose 0.2 last month, a more moderate pace than the 0.4 percent rise reported in May. A retreat in energy prices in June helped hold down the number. Energy prices declined 0.9 percent last month, the first time since February they dropped. But with crude oil prices once again near record highs, the June decline may be short-lived. “The reality is that inflation continues to accelerate,” Joel L. Naroff, chief economist at Naroff Economic Advisors, wrote in a report yesterday. “Excluding energy, retail costs rose at a pace that cannot make anyone on the F.O.M.C. comfortable,” he said, referring to the Federal Open Market Committee, the group at the Fed that sets interest rates. A major contributor to the increase in consumer prices last month was the cost of housing. The indexes for rent and its equivalents in the consumer price calculation climbed 0.4 percent. Prices for medical care, education and tobacco also went up. With prices over the next several months expected to be higher because of record oil prices and rising rents, many economists say they believe the current inflationary trends are likely to become the norm. “What this suggests is a broad-based rise in core inflation, and this has been happening over the past several months,” said Dean Maki, chief United States economist at Barclays Capital. “This is the trend.” Simon Hayley, senior international economist with Capital Economics in London, said, “This is not a temporary blip.” Still, investors appeared to shrug off the concerns raised by the numbers and to focus instead on remarks by Mr. Bernanke in Senate testimony. Mr. Bernanke said that while inflation was still on the rise, he believed that the impact of the Fed’s past interest rate tightening had yet to be fully felt. Investors also largely ignored another government report yesterday with more signs the housing market was slowing. Building permits fell to a three-year low and new residential construction fell by 5.3 in June, the slowest pace in a year and a half.
http://www.nytimes.com/2006/07/20/b...ca4ae0266b7b&ei=5089&partner=rssyahoo&emc=rss
A closely watched barometer of inflation grew at a strong pace in June but shed little light on whether the Federal Reserve would increase interest rates again next month. While the Labor Department reported yesterday that core consumer prices had the largest sustained rise since 1995, Ben S. Bernanke, the Fed chairman, sounded a less-than-hawkish tone on inflation in testimony on Capitol Hill. Without a more declarative position from Mr. Bernanke, economists were left to speculate whether the Fed may pause when it meets next month or approve its 18th consecutive increase in interest rates. The Labor Department reported that the core Consumer Price Index, which does not include food and energy prices, rose by 0.3 percent in June, its fourth consecutive increase. That was a larger increase than economists expected, and represented the longest period of high inflation in the core rate since the first four months of 1995. Over all, consumer prices rose 0.2 last month, a more moderate pace than the 0.4 percent rise reported in May. A retreat in energy prices in June helped hold down the number. Energy prices declined 0.9 percent last month, the first time since February they dropped. But with crude oil prices once again near record highs, the June decline may be short-lived. “The reality is that inflation continues to accelerate,” Joel L. Naroff, chief economist at Naroff Economic Advisors, wrote in a report yesterday. “Excluding energy, retail costs rose at a pace that cannot make anyone on the F.O.M.C. comfortable,” he said, referring to the Federal Open Market Committee, the group at the Fed that sets interest rates. A major contributor to the increase in consumer prices last month was the cost of housing. The indexes for rent and its equivalents in the consumer price calculation climbed 0.4 percent. Prices for medical care, education and tobacco also went up. With prices over the next several months expected to be higher because of record oil prices and rising rents, many economists say they believe the current inflationary trends are likely to become the norm. “What this suggests is a broad-based rise in core inflation, and this has been happening over the past several months,” said Dean Maki, chief United States economist at Barclays Capital. “This is the trend.” Simon Hayley, senior international economist with Capital Economics in London, said, “This is not a temporary blip.” Still, investors appeared to shrug off the concerns raised by the numbers and to focus instead on remarks by Mr. Bernanke in Senate testimony. Mr. Bernanke said that while inflation was still on the rise, he believed that the impact of the Fed’s past interest rate tightening had yet to be fully felt. Investors also largely ignored another government report yesterday with more signs the housing market was slowing. Building permits fell to a three-year low and new residential construction fell by 5.3 in June, the slowest pace in a year and a half.
http://www.nytimes.com/2006/07/20/b...ca4ae0266b7b&ei=5089&partner=rssyahoo&emc=rss
