Core Prices Rose Enough To Suggest Another Rate Hike
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Consumer prices probably rose enough in June to prompt another interest-rate increase from the Federal Reserve as the U.S. central bank aims to control inflation, economists said a report this week will show.
The consumer price index gained 0.2 percent after a 0.4% advance in May, according to the median forecast in a Bloomberg News survey before the Labor Department’s July 19 report. Socalled core prices, which exclude food and energy,rose 0.2% after adding 0.3%.
The report will come less than two hours before Fed Chairman Ben Bernanke briefs Congress on the state of the economy and the outlook for interest rates. The projected increase in core inflation will put the gain over the last year even farther above Mr. Bernanke’s comfort zone.
“We look for the testimony to focus slightly more on inflation risk than growth risk,” said Ethan Harris, chief American economist at Lehman Brothers Inc. in New York. The case for holding rates steady next month “will be a hard sell if the core is still accelerating.”
Core consumer prices probably rose 2.6% in the 12 months ended in June, the biggest such increase since February 2002, according to the survey median.
The Fed’s preferred inflation gauge, the Commerce Department’s personal consumption expenditures index excluding food and energy, usually grows just “several 10ths” of a percentage point less than consumer prices, Harris said. Mr. Bernanke and other policy makers have said 2% is the upper end of the range the central bank can tolerate.
The increase in consumer prices in June was smaller than in the previous month because gasoline prices stabilized, economists said.A gallon of regular gasoline at the pump cost an average $2.87 last month compared with $2.89 in May, according to figures from the American Automobile Association.
The respite from higher fuel costs was fleeting. Gasoline prices rose to their highest in 10 months last week, following crude oil’s jump to a record, as Israel’s offensive in Lebanon raised concern Middle East oil supplies might be disrupted.
Transportation companies are among businesses having success in raising prices to recoup higher fuel bills. Southwest Airlines Co., the largest low-fare carrier, this month increased its highest one-way ticket price by $10 for the second time this year as the carrier raised the estimate of what it will spend for jet fuel.
