Federal Reserve chairman Ben S. Bernanke took pains Tuesday to highlight signs of continued improvement in the economy, but said rising commodity prices would likely lead to “a temporary and relatively modest increase in U.S. consumer price inflation.”
He also warned Senate lawmakers that a sustained increase in the price of oil could threaten economic growth and price stability.
Higher cotton costs and labor rates have been pointing to rising prices in fashion for the better part of a year, but if prices across the economy are also increasing it will be harder for retailers to pass off their higher costs to consumers.
Bernanke’s comments and the return of $100-a-barrel oil helped push the market and retail stocks down. The S&P Retail Index fell 1.5 percent, or 7.41 points, to 505.38, as the Dow Jones Industrial Average retreated 1.4 percent, or 168.32 points, to 12,058.02.
Among the retail decliners were Saks Inc., down 4.1 percent to $11.75; Macy’s Inc., 2.3 percent to $23.34; J.C. Penney Co. Inc., 2.2 percent to $34.20, and Tiffany & Co., 2.1 percent to $60.29.
After shareholders approved J. Crew Group Inc.’s $3 billion deal to go private Tuesday, investors appeared to move onto a different takeover candidate—Abercrombie & Fitch Co., which has been said to be of interest to deep-pocketed buyers for months. Shares of the chain rose 1 percent to $57.93 with 5.1 million shares trading hands, well above the average of 2.8 million shares.
And debt watchdog Standard & Poor’s upgraded Polo Ralph Lauren Corp.’s corporate credit rating to “A-minus” from “BBB-plus,” leaving the firm four notches into the investment grade rating category. Despite the upgrade, which cited the firm’s “strong business profile” and “strong brands,” shares of Polo fell 2.1 percent to $124.10.
Headed the other way, S&P reduced Avon Products Inc.’s corporate credit rating to “BBB-plus” from “A-minus.” The rating agency said operational issues in Brazil and a weak performance in Russia hurt the direct marketer’s credit profile. Shares of the company dipped 1.4 percent to $27.41.
Bernanke also said, “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. Notably, real consumer spending has grown at a solid pace since last fall, and business investment in new equipment and software has continued to expand.”
Business spending on equipment is usually seen as a prelude to increased hiring. But the unemployment rate still stands at 9 percent and Bernanke added, “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”