By Lorraine Woellert
WASHINGTON – The cost of living in the U.S. rose less than forecast in May, restrained by the first drop in food prices in almost four years and signaling inflation remains under control.
The consumer price index was up 0.1 percent after falling 0.4 percent in April, the Labor Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg News called for an increase of 0.2 percent. The core index, which excludes volatile food and fuel costs, climbed 0.2 percent as projected.
A recession in Europe and slower growth in emerging markets such as China, combined with restrained wage gains in the U.S., have made it difficult for companies to raise prices. The lack of inflation gives Federal Reserve policy makers, meeting today and tomorrow in Washington, more leeway to address unemployment as they consider whether to dial down their record monetary stimulus.
“Inflation has undershot pretty much where everybody thought it would be,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd. in White Plains, New York, said before the report. “The excessively low level of inflation ought to be almost as big a concern as the growth story.”
Estimates in the Bloomberg survey ranged from a decline of 0.5 percent to a gain of 0.5 percent.
Another measure of inflation reached a 53-year-low, climbing 1.1 percent in April from the prior year, below the Fed’s long-run goal of 2 percent, the Commerce Department reported last month.
While inflation is contained, the unemployment rate is at 7.6 percent, meaning the Fed is falling short of its mandate to keep prices stable and maximize employment.
For the 12 months that ended in May, consumer prices climbed 1.4 percent compared to a 1.1 percent year-over-year gain reported in April. For the same period, the core CPI rose 1.7 percent, the same as in the prior month.
Energy costs increased 0.4 percent from a month earlier, while food prices dropped 0.1 percent, the first decrease since September 2009. The decline was driven by a record 0.9 percent slump in baked goods.
Delta Air Lines hedged rising jet fuel costs by purchasing a refinery a year ago, a move that has helped the company save $400 million.
“We’re not taking full ownership for the reasons why jet fuel costs are down,” Delta President Ed Bastian said at a June 13 conference. “We know there is other factors that are also influencing that curve. But over the last 90 days, we’ve been paying as a company $0.10 less per gallon for jet fuel than we would have historically paid.”
The Cheesecake Factory Inc., Ruth’s Hospitality Group Inc. and other chains have reported lower-than-expected increases in beef and other commodity costs so far this year. That’s good news for Cheesecake Factory, said Doug Benn, executive vice president and chief financial officer at the Calabasas Hills, Calif., company.
“Commodity cost inflation is more benign than we thought it was going to be at the beginning of the year,” Benn said at a June 11 conference. “In the first quarter, we had slightly better cost of sales because the inflation was lower and we lowered our overall cost of inflation, cost expectations, for the year.”
The cost of medical care commodities declined 0.5 percent, reflecting a record 0.7 percent drop in drugs.
Even with inflation under control, paychecks are failing to keep pace. Hourly earnings adjusted for inflation declined 0.2 percent in May, and were up 0.5 percent over the past 12 months.