Energy Costs Fan Inflation

JEFF BATER / Dow Jones Newswires 18may2005

WASHINGTON — U.S. consumer prices climbed more than expected during April as energy prices recorded the biggest increase in two years, but cost increases for other goods moderated.

The consumer-price index rose 0.5% last month, after rising 0.6% in March, the Labor Department said Wednesday. The core index, which excludes food and energy items, was flat after climbing 0.4% in March. Economists surveyed by Dow Jones Newswires and CNBC called for a 0.4% increase in the overall CPI and a 0.2% gain in the core.

In annual terms, consumer prices rose 3.5%, higher than the 3.1% gain in March, while core consumer prices rose 2.2%, slower than March's 2.3% gain. So far in 2005, the CPI has increased at a seasonally adjusted annual rate of 4.8%; consumer prices climbed 3.3% in all of 2004.

Energy prices rose 4.5% in April, the biggest increase since prices rose 5.7% in March 2003. Gasoline prices climbed 6.4% and natural-gas prices increased 5.6%. Food prices increased 0.7%, after rising 0.2%. Housing prices, which account for about 40% of the CPI, rose 0.3% after climbing 0.5% in March. As gasoline prices have shot up, transportation prices climbed 1.8%, slightly below March's 1.9% increase. New car prices dipped 0.1% in April.

Apparel prices tumbled 0.6% after advancing 0.8%. Airline fares were up 3.6%, the third straight rise and the largest increase since rising 5.0% in June 2001. Prices of medical care rose 0.2%, lower than March's 0.5% increase.

The report came a day after the Labor Department reported wholesale prices rose a higher-than-expected 0.6% in April. Some analysts reviewing that data concluded commodity price pressures, barring further energy-cost increases, have peaked.

To counter inflation, the Federal Reserve has been raising interest rates for nearly a year. It pushed up its key federal-funds rate to 3% on May 3, the eighth quarter-percentage-point increase in a row. In its last "beige book" report on economic conditions, the central bank said many regions reported more "upward price pressures" between late February and early April and that companies were able to pass some higher costs on to their customers.

In a statement after the May 3 meeting, the Fed indicated rate tightening may not be over. Policy makers said that "even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity."

In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, increased 0.2%. Average hourly earnings rose 0.3%. Average weekly hours rose 0.6%.

United States Department of Labor
Bureau of Labor Statistics
Washington   DC

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USDL-05-871
TRANSMISSION OF MATERIAL IN THIS RELEASE IS EMBARGOED UNTIL 8:30 A.M. (EDT) Wednesday, May 18, 2005

CONSUMER PRICE INDEX: APRIL 2005

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.7 percent in April, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The April level of 194.6 (1982-84=100) was 3.5 percent higher than in April 2004.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.8 percent in April, prior to seasonal adjustment. The April level of 190.2 was 3.7 percent higher than in April 2004.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.5 percent in April on a not seasonally adjusted basis. The April level of 113.1 (December 1999=100) was 2.9 percent higher than in April 2004. Please note that the indexes for the post-2003 period are subject to revision.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.5 percent in April, following an increase of 0.6 percent in March. Energy costs advanced sharply for the third consecutive month--up 4.5 percent in April. Within energy, the index for petroleum-based energy increased 6.3 percent and the index for energy services increased 2.3 percent. The index for food rose 0.7 percent. The index for food at home increased 1.1 percent, its largest advance since a similar rise in May 2004. The index for all items less food and energy, which increased 0.4 percent in March, was virtually unchanged in April. Declines in the indexes for apparel and for lodging while away from home, which had accounted for the acceleration in March, were largely responsible for the deceleration in April.

Table A. Percent changes in CPI for All Urban Consumers (CPI-U)

			        Seasonally adjusted                 .
							    Compound
							    annual   
							    rate     Unadjusted 
Expenditure 		  Changes from preceding month      3-mos.   12-mos.
Category          	     2004             2005          ended    ended 
			Oct. Nov. Dec. Jan. Feb. Mar. Apr.  Apr.’05  Apr.’05 
All Items 		.6   .3   .0   .1   .4   .6   .5     6.2     3.5 
Food and beverages	.5   .3   .0   .1   .1   .2   .6     3.6     3.1 
Housing 		.2   .3   .2   .1   .4   .5   .3     4.4     3.2 
Apparel 		.0   .2  -.4   .3  -.2   .8  -.6     -.3     -.5 
Transportation 	       2.1   .2  -.7  -.2   .8  1.9  1.8    19.1     7.0 
Medical care 		.4   .3   .3   .4   .6   .5   .2     5.1     4.3 
Recreation 		.1   .1   .0   .1  -.2   .0   .2      .0      .2 
Education and 
   communication       -.2   .4   .1   .1   .3   .2   .4     3.6     1.8 
Other goods and
   services 		.2   .1   .4   .4   .3   .1   .0     2.0     2.6 
Special Indexes
   Energy 	       4.0  1.0 -1.3 -1.1 2.0 4.0 4.5 51.2 17.1 
Food 			.6   .3   .0 .1 .1 .2 .7 3.7 3.1 
All Items less
   food and energy 	.2  .2    .2 .2 .3 .4 .0 2.6 2.2

During the first four months of 2005, the CPI-U rose at a 4.8 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 3.3 percent for all of 2004. The index for energy, which rose 16.6 percent in 2004, advanced at a 31.7 percent SAAR in the first four months of 2005. Petroleum-based energy costs increased at a 54.1 percent annual rate and charges for energy services rose at an 8.9 percent annual rate. The food index has increased at a 3.1 percent SAAR thus far this year, following a 2.7 percent rise for all of 2004. Excluding food and energy, the CPI-U advanced at a 2.6 percent SAAR in the first four months, following a 2.2 percent rise for all of 2004.

The food and beverages index increased 0.6 percent in April. The index for food at home, which rose 0.2 percent in March, advanced 1.1 percent in April. Increases in the indexes for fruits and vegetables, for nonalcoholic beverages and for other food at home--up 3.4, 1.1, and 1.3 percent, respectively--accounted for five-sixths of the advance in the April food at home index. The advance in the index for fruits and vegetables was its first increase since November. In April, the indexes for fresh vegetables and for processed fruits and vegetables rose 7.9 and 2.8 percent, respectively, while the index for fresh fruits decreased 0.7 percent. (Prior to seasonal adjustment, the index for fresh fruits rose 0.8 percent.) Increases in the indexes for coffee and for carbonated drinks--up 4.6 and 1.9 percent, respectively--accounted for the rise in the index for nonalcoholic beverages. Upturns in the indexes for snacks, for sugar and sweets, and for butter and margarine were largely responsible for the increase in the index for other food at home. The indexes for meats, poultry, fish, and eggs and for dairy products each increased 0.4 percent, while the index for cereals and bakery products was virtually unchanged. Within the first group, increases in the indexes for pork and for fish and seafood more than offset declines in poultry and egg prices. Beef prices were unchanged in April. The other two components of the food and beverage index--food away from home and alcoholic beverages--increased 0.2 and 0.1 percent, respectively.

The index for housing rose 0.3 percent in April. Shelter costs, which advanced 0.6 percent in March, were virtually unchanged in April, largely as a result of a downturn in the index for lodging away from home. The index for lodging away from home declined 1.2 percent in April, following a 3.9 percent increase in March. In April, the indexes for rent and owners' equivalent rent increased 0.3 and 0.1 percent, respectively. The index for fuels and utilities rose 2.1 percent, following a 0.1 percent increase in March. The index for fuel oil increased 4.6 percent in April to a level 39.1 percent higher than in April 2004. The indexes for gas and for electricity rose 5.6 and 0.6 percent, respectively. During the last 12 months, charges for natural gas have risen 16.4 percent and charges for electricity have increased 4.1 percent. In April, the index for household furnishings and operations was unchanged for the second consecutive month.

The transportation index rose 1.8 percent in April, largely reflecting a 6.4 percent increase in the index for gasoline. (Prior to seasonal adjustment, the price of gasoline was 10.2 percent higher than its previous peak level of last month and 24.2 percent higher than a year earlier.) The index for new vehicles declined for the second consecutive month--down 0.1 percent in April. Despite the recent declines, new vehicle prices have risen 0.9 percent during the last 12 months. The index for used cars and trucks rose 0.3 percent in April to a level 5.2 percent above April 2004. The index for public transportation increased 1.7 percent in April, reflecting increases in the indexes for airline fares and for other intercity transportation. Airline fares registered their third consecutive advance, up 3.6 percent in April, their largest monthly advance since a 5.0 percent increase in June 2001. With the recent advances, airline fares are 1.1 percent higher than in April 2004, but are 3.8 percent lower than in the month prior to the terrorist attacks in 2001.

The index for apparel decreased 0.6 percent in April after increasing 0.8 percent in March, reflecting discounting of women’s and girls’ apparel--down 1.3 percent. (Prior to seasonal adjustment, apparel prices rose 0.2 percent.)

Medical care costs rose 0.2 percent in April to a level 4.3 percent higher than a year ago. The index for medical care commodities--prescription drugs, nonprescription drugs, and medical supplies--was virtually unchanged in April. The index for medical care services rose 0.3 percent in April. Charges for professional services and for hospital and related services each increased 0.4 percent.

The index for recreation, which was unchanged in March, rose 0.2 percent in April. The index for recreational services rose 0.2 percent in April after declining 0.2 percent in March. Increases in the indexes for club membership dues and fees for participant sports and for fees for lessons and instructions more than offset a decline in the index for admissions to movies, theaters, concerts, and sporting events.

The index for education and communication increased 0.4 percent in April. The education index rose 0.6 percent and the index for communication costs increased 0.1 percent. Within the latter group, the index for telephone services rose 0.3 percent, reflecting increases in both local and long distance land-line telephone charges. The index for personal computers and peripheral equipment was virtually unchanged in April, but has declined 15.7 percent during the last 12 months.

The index for other goods and services was virtually unchanged in April. The index for tobacco and smoking products increased 0.1 percent. The index for miscellaneous personal services rose 0.3 percent, reflecting a 1.4 percent increase in the index for tax return preparation and other accounting fees.

CPI for Urban Wage Earners and Clerical Workers (CPI-W)

On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers increased 0.6 percent in April.

Table B. Percent changes in CPI for Urban Wage Earners and Clerical Workers (CPI-W)

			        Seasonally adjusted                 .
							    Compound
							    annual   
							    rate     Unadjusted 
Expenditure 		  Changes from preceding month      3-mos.   12-mos.
Category          	     2004             2005          ended    ended 
			Oct. Nov. Dec. Jan. Feb. Mar. Apr.  Apr.’05  Apr.’05 
All Items 		.6   .3  -.1   .1   .4   .6   .6    6.6      3.7 
Food and beverages 	.5   .3   .0   .1   .1   .2   .6    3.7      3.0 
Housing 		.2   .3   .2   .2   .4   .3   .3    4.1      3.2 
Apparel 		.0   .2  -.3   .5  -.1   .5  -.7   -1.3      -.5
Transportation 		2.2  .1  -.5  -.3   .8  2.1  1.8   20.2      7.7 
Medical care 		.3   .3   .3   .3   .6   .4   .3    5.6      4.4 
Recreation 		.1   .1  -.1   .2  -.2   .0   .1    -.4       .1 
Education and
	Communication 	-.3  .3   .1   .1   .3   .1   .4    2.9      1.1 
Other goods and 
	Services 	.1   .2   .4   .5   .4   .0   .0    1.6      2.8 
Special Indexes Energy 4.2   .7 -1.3 -1.3  2.0  4.4  4.6   53.5     17.4 
Food 			.6   .3   .0   .1   .1   .2   .7    3.9      3.1 
All Items less 
	food and energy .2   .2   .2   .2   .3   .2   .1    2.3      2.2

Consumer Price Index data for May are scheduled for release on Wednesday, June 15, 2005, at 8:30 A.M. (EDT).

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Brief Explanation of the CPI

The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPI-U), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force.

The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls of the Bureau’s trained representatives.

In calculating the index, price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W separate indexes are also published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 27 local areas. Area indexes do not measure differences in the level of prices among cities; they only measure the average change in prices for each area since the base period. For the C-CPI-U data are issued only at the national level. It is important to note that the CPI-U and CPI-W are considered final when released, but the CCPI- U is issued in preliminary form and subject to two annual revisions.

The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100.0. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65.

For further details visit the CPI home page on the Internet at http://www.bls.gov/cpi/ or contact our CPI Information and Analysis Section on (202) 691-7000.

Calculating Index Changes

Movements of the indexes from one month to another are usually expressed as percent changes rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period while percent changes are not. The example below illustrates the computation of index point and percent changes.

Percent changes for 3-month and 6-month periods are expressed as annual rates and are computed according to the standard formula for compound growth rates. These data indicate what the percent change would be if the current rate were maintained for a 12- month period.

Index Point Change

CPI 115.7 Less previous index 111.2 Equals index point change 4.5

Percent Change

Index point difference 4.5 Divided by the previous index 111.2 Equals 0.040 Results multiplied by one hundred 0.040x100 Equals percent change 4.0

Regions Defined

The states in the four regions shown in Tables 3 and 6 are listed below.

The Northeast--Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, Rhode Island, and Vermont.

The Midwest--Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

The South--Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia, and the District of Columbia.

The West--Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.