Consumers Spending Slows

The Commerce Department reported on Friday that core consumer prices went up by 0.1% as it was expected in May, which kept core inflation within the Federal Reserve’s interests.

Core prices, that do not include food and energy costs, increased by 1.9% during the last 12 months, which was in the range that central bank unofficially set between 1% and 2%.

``There has been a clear slowing in core prices the past few months, but as the Fed cautioned yesterday, it remains to be seen whether that is sustainable,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``Consumer spending has slowed pretty decisively in the second quarter.'' O'Sullivan was one of the economists, who had predicted the gain in spending.

In May personal incomes increased by 0.4 percent after 0.2 percent decrease in April.
According to the survey median, personal income was to go up by 0.6 percent.

According to Commerce Department figures, the core inflation measure increased by 1.9 percent from May 2006, which is the smallest indicator for year-over-year gain since March 2004.

Fed Chairman Ben S. Bernanke said that they would prefer core inflation within a 1 percent to 2 percent range. The Fed yesterday kept U.S. interest rate at 5.25 percent and said that inflation is the ``predominant'' risk for the economy.

``Readings on core inflation have improved modestly in recent months,'' the Federal Open Market
Committee's announcement said. ``However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.''

The savings rate decreased by 1.4 percent, which is the lowest showing since August 2006. This means that consumers use their savings in order to keep their spending on the same rate.

The report showed, that taking into account the inflation, spending increased by 0.1 percent in May, after 0.2 percent increase during April.

Economists said that rising wages and a jobless rate near a six-year low are preventing spending from slowing even more. Average hourly earnings were up 3.8 percent in May from the prior year, according to the Labor Department report.

Economists forecast that gasoline prices will go up and interest rates will continue to increase, which will result in less spending during the next months.

Target Corp., the second-largest U.S. discount chain, said this week that June sales at stores open at least a year will increase by the ``lower end'' of its forecast range of 3 percent to 5 percent.

Core inflation is a measure of inflation which excludes certain items that are affected by sudden price movements. The preferred measure by the Federal Reserve of core inflation in the United States is the core Personal consumption expenditures price index. This is based on chained dollars.

In the past the preferred measure of inflation in the United States was the Consumer Price Index. This is still used as the indicator for most other countries, and is presented monthly in the US by the Bureau of Labor Statistics. This index is more subject to changes on month to month basis than "core inflation".

This is because core inflation excludes such products that can have temporary price shocks like energy and food products). Core inflation is used as an indicator and predictor of underlying long-term inflation, according to Wikipedia, the free encyclopedia. – Alla Harutyunyan for HULIQ.COM

Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.