GO
Loading...

Housing starts fall as consumer prices log biggest jump in a year

Construction workers build a new home in Miami, Florida.
Getty Images
Construction workers build a new home in Miami, Florida.

U.S. housing starts and building permits fell more than expected in May, suggesting the housing recovery will likely remain slow for a while.

Groundbreaking for homes fell 6.5 percent to a seasonally adjusted annual pace of 1 million units, the Commerce Department said Tuesday. March's starts were revised down to show a 12.7 percent increase instead of the previously reported 13.2 percent rise.

Economists polled by Reuters had forecast starts slipping to a 1.03 million-unit rate last month.

Housing is struggling to regain momentum after a runup in mortgage rates and hefty increases in prices stifled demand. A shortage of properties has also weighed on the sector. Groundbreaking for single-family homes, the largest part of the market, fell 5.9 percent in May to a 625,000-unit pace, while starts for the volatile multifamily homes segment decreased 7.6 percent to a 376,000-unit rate.

Federal Reserve Chair Janet Yellen said last month there was a risk a protracted housing slowdown could undermine the economy.

Permits to build homes declined 6.4 percent to a 991,000-unit pace in May, pulling back from the 1.06 million units touched in April. Economists had expected permits to dip to a 1.05-million unit pace.

Permits for single-family homes rose 3.7 percent to a 619,000 unit-pace. They continue to lag groundbreaking, suggesting single-family starts could fall in the months ahead. A survey on Monday showed confidence among single-family home builders increased in June, but fell short of reaching the threshold considered favorable for building conditions.

Permits for multifamily housing tumbled 19.5 percent to a 372,000-unit pace.

Consumer prices surge

A separate report said 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 reported 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 that inflation was running too low. Still, the main inflation gauge watched by the Fed continues to run below the U.S. central bank's 2 percent target.

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

Read More Fedspeak 3.0: The 'dot plot'

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 2.0 percent rise in April and was above economists' expectations for a year-on-year increase of 2.0 percent.

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 2.0 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.

—By Reuters

Contact US Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More