U.S. Stock Futures Drop After Consumer Inflation Tops Forecasts

By Lynn Thomasson

Aug. 14 (Bloomberg) -- U.S. stock-index futures fell, erasing an earlier advance, after consumer inflation grew at twice the rate economists had forecast for July and jobless claims topped estimates.

Caterpillar Inc., Microsoft Corp. and General Electric Co. led declines in Dow Jones Industrial Average stocks trading in Europe after the Labor Department said the consumer price index climbed 0.8 percent last month.

``It's a shock that the numbers were that far off course,'' said John Wilson, co-director of equity strategy and chief market technician at Morgan Keegan, which manages $120 billion in Memphis, Tennessee. ``Inflation is always the thing the bears want to harp on and they'll beat this drum pretty hard.''

Standard & Poor's 500 Index futures expiring in September lost 6.6, or 0.5 percent, to 1,278 as of 9:09 a.m. in New York. Dow futures decreased 49 to 11,473. Nasdaq-100 Index futures slid 5.75 to 1,935.75.

Futures advanced earlier after a rally in gold prices boosted the earnings outlook for commodity producers and Wal-Mart Inc. increased its profit forecast. European shares erased their gain after the report and Asian markets, which closed before the data were released, retreated.

Caterpillar, the largest maker of bulldozers, fell 23 cents to $69.60 in Germany, where Microsoft, the biggest software maker, slipped 29 cents $27.62. GE fell 16 cents to $29.15.

The government said so-called core prices, which exclude food and energy, increased 0.3 percent last month, also rose more than projected.

Rate Concern

The inflation report may intensify the debate between those Federal Reserve policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel make it less likely that central bankers will be able to keep interest rates unchanged for long.

Companies including Procter & Gamble Co. and McDonald's Corp. have boosted prices to cope with record high commodity prices. The Fed predicted inflation will ease through next year, according to the statement released at its interest rate meeting last week. There's an 84 percent chance policy makers will keep the benchmark lending rate at 2 percent after convening in September, futures contracts show.

Oil prices have slumped 20 percent since reaching a high on July 3, helping restrain inflation as economic growth decelerates.

Wal-Mart erased an earlier advance to fall 8 cents to $57.80 after the report. The company said second-quarter profit climbed to 87 cents a share because of price cuts and tax-rebate spending. The company also said full-year earnings would increase more than it previously forecast.

Profit for the year that ends in early 2009 will be $3.43 to $3.50 a share. Wal-Mart had forecast $3.30 to $3.43 in February.

GM's Plan

General Motors Corp., seeking to speed up the restructuring plan announced last month, added 9 cents to $10.35. The company said it may be able to reap more of the $10 billion in projected savings this year instead of in 2009.

Faster savings would afford Chief Executive Officer Rick Wagoner more flexibility under the plan he announced July 15 to boost liquidity by as much as $17 billion. The moves will give GM the cash to operate through next year, Wagoner has said.

U.S. stocks yesterday fell for a second day as earnings from Deere & Co. disappointed investors, retail sales declined and Merrill Lynch & Co. said the contagion from the collapse of the subprime mortgage market is far from over.

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.