Consumer Prices Pump Up on Higher Cost for Gasoline

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Consumer Price Index
Danny Johnston/AP
By Lucia Mutikani

WASHINGTON -- U.S. consumer prices rose in June as the cost of gasoline surged, but the underlying trend remained consistent with a gradual build-up of inflationary pressures.

The Labor Department said Tuesday its Consumer Price Index rose 0.3 percent last month, with gasoline accounting for two-thirds of the gain, after May's 0.4 percent rise.

In the 12 months through June, the CPI increased 2.1 percent after a similar rise in May.

Inflation is creeping up as the economy's recovery becomes more durable, a welcome development for some Federal Reserve officials who had worried that price pressures were too low.

The steady increases have led some economists to predict that a separate inflation gauge watched by the Fed, currently running below the U.S. central bank's 2 percent target, could breach that target by year-end as an acceleration in job growth lifts wages.

Fed Chair Janet warned last week the Fed could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.

The dollar reversed losses against the euro on the data, while U.S. stock index futures extended gains. Prices for U.S. Treasury debt trimmed losses.

Last month's increase in the CPI was in line with economists' expectations. Gasoline prices jumped 3.3 percent, the largest rise in a year, after increasing 0.7 percent in May.

While prices for electricity also rose, they slowed from May's brisk 2.3 percent increase. Food prices edged up 0.1 percent in June, the smallest rise since January

Food prices have now advanced for six straight months. A drought in California last year has been pushing up prices, but the momentum is ebbing.

Prices for dairy products, cereals, fruit and vegetables fell last month. The index for meats, poultry, fish and eggs rose, however.

Stripping out food and energy prices, the so-called core CPI rose 0.1 percent, slowing after May's 0.3 percent increase.

In the 12 months through June, the core CPI increased 1.9 percent after rising 2 percent rise in May. Economists had forecast the core CPI rising 0.2 percent from May and 2 percent from a year-ago.

The core CPI was held back by declines in prices for new motor vehicles and used trucks.

The cost of shelter moderated a bit as did airline fares and medical care services, which were flat. There were big increases in tobacco prices and the cost of household furnishing and operations rose for the first time in a year.

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Consumer Prices Pump Up on Higher Cost for Gasoline
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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