Consumer Prices Record Biggest Jump in More Than a Year

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Patrick T. Fallon/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. consumer prices recorded their largest increase in more than a year in May as costs for a range of goods and services rose, pointing to a steady firming of inflation pressures.

The Labor Department said Tuesday its Consumer Price Index increased 0.4 percent last month, with food prices posting their biggest rise since August 2011.

The uptick in price pressures should comfort some Federal Reserve officials who had worried inflation was running too low. Still, a separate inflation gauge watched most closely by the Fed continues to run below the U.S. central bank's 2 percent target.

Fed officials start a two-day policy meeting Tuesday. The Fed is expected to further trim its monthly bond buying program, but isn't seen raising interest rates until mid-2015.

A separate report from the Commerce Department showed housing starts and permits fell in May, a sign that the housing recovery could remain in slow mode. Fed Chair Janet Yellen has warned that a protracted housing slowdown could undermine the economy.

Groundbreaking for homes fell 6.5 percent to a seasonally adjusted annual pace of 1 million units in May. Permits declined 6.4 percent to a 991,000-unit pace, pulling back from the 1.06 million units touched in April.

U.S. stock index futures turned negative on the data, while prices for U.S. Treasury debt fell. The dollar hit session highs versus the yen and the euro.

"Medical care costs will help push inflation to 2 to 2.5 percent later this year. But the Fed could tolerate that," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee.

Last month's increase in consumer prices was the largest since February 2013 and above economists' expectations for a 0.2 percent gain. It followed a 0.3 percent advance in April.

In the 12 months through May, consumer prices increased 2.1 percent, the biggest rise since October 2012. That came on top of a 2 percent rise in April and was above economists' expectations for a year-on-year increase of 2 percent.

It was the first back-to-back 2 percent rise in the year-on-year CPI since early 2012.

%VIRTUAL-article-sponsoredlinks%Stripping out food and energy prices, the so-called core CPI rose 0.3 percent, the largest increase since August 2011. It had risen 0.2 percent in April.

In the 12 months through May, the core CPI increased 2 percent. That was the biggest gain since February of last year and followed a 1.8 percent rise in April.

Economists had forecast the core CPI rising 0.2 percent from April and 1.9 percent from a year-ago.

Food prices increased 0.5 percent in May, rising for a fifth consecutive month. Prices for meat, dairy, fruit and vegetables rose. Poultry and fish prices also increased as did the cost of eggs. Gasoline prices increased 0.7 percent. Prices for electricity also rose after declining in the prior month.

The core CPI was lifted by a 0.3 percent rise in rent. There were also increases in medical care costs, apparel, new cars prices and airline fares.

-Additional reporting by Richard Leong in New York.

8 PHOTOS
7 Products With Outrageous Markups
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Consumer Prices Record Biggest Jump in More Than a Year
With a cost per pound of potatoes near 15 cents and a retail price near $6 per pound, you're paying a 3,900 percent markup for those crispy fries. And we're not even counting the cost of trans fats to your health.
It's the ultimate upsell: "You want a drink with that?" A cup of soda costs 15 cents; you pay $2.95 -– a bubbly margin of 1,875 percent.
Buying apparel with a designer label is a financial faux pas. With a cost of $7 and a retail price of $60, that brand name shirt has a 750 percent markup.

 You know this one: the "latte factor" so often cited by frugalistas, but it's still worth noting. A home brew cup of joe costs about 50 cents. Spend $2.45 on a grande, and you've paid a 390 percent markup

Does your vehicle really require premium oil? Check the owner's manual for specifications. The markup on "high-performance" oils can be 80 percent, costing you $20 more than a regular oil change.

Those bountiful food troughs may seem like a tasty bargain, especially for those with ample appetites, but the odds favor the house. The average buffet is $12, but the servers know that most stomachs can't hold more than $8 worth of food. It's a 50 percent markup in their favor.

"Mascara will expire in three months, whether you buy it from CVS or Chanel," the report says. "When deciding how much to spend, think about the lifetime of each item. Case in point: drugstore mascara will cost you about six cents per use, whereas Chanel will cost you about 33 cents -- and you probably won't finish using either before the expiration date." Bottom line: You're paying an extra $25 -- a 450 percent markup for –- for the brand on the bottle.
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