Consumer prices starting to rise in U.S.

May 17, 2016, 2:18 PM EDT
(Source: Allen/flickr)
(Source: Allen/flickr)

Consumer prices in the U.S. rose in April at the fastest rate in three years.

Reuters reports:

U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year. Other data on Tuesday showed housing starts and industrial production rebounded strongly last month, suggesting the economy was regaining steam early in the second quarter after almost stalling early in the year. "The combination of higher prices, housing gains and industrial production support the narrative of a second-quarter rebound in GDP, and will stir talks of the necessity of at least one Fed hike later this year," said Jay Morelock, an economist at FTN Financial in New York. The Labor Department said its Consumer Price Index increased 0.4 percent last month, the largest gain since February 2013, after rising 0.1 percent in March. That took the year-on-year increase in the CPI to 1.1 percent from 0.9 percent in March. Americans also paid more for medical care, food, recreation, tobacco, motor vehicle insurance, airline fares and grooming. Economists polled by Reuters had forecast the CPI gaining 0.3 percent last month and advancing 1.1 percent from a year ago.

The Wall Street Journal writes:

“Overall core-services inflation continues to gradually firm, and we expect further firming this year,” said Michael Gapen, chief U.S. economist at Barclays, in a note to clients. “We view this rise in inflation as consistent with our view that reduced slack in the U.S. economy will continue to put upward pressure on prices.” Economists surveyed by The Wall Street Journal had expected a 0.3% increase in overall prices last month, and a 0.2% rise for core prices from March. Overall prices rose 1.1% in April from a year earlier, up from a 0.9% annual gain in March. Annual inflation hovered around zero for most of 2015. Prices rose last month for food, energy, medical supplies and shelter, but clothing and car prices declined from March. The cost of rent was up 3.7% on the year for a fifth consecutive month in April, matching the strongest growth pace 2008.

Bloomberg notes:

Inflation makes up half of the central bank’s dual mandate of price stability and maximum employment. While the labor market has made steady progress over the past two years, prices have been slower to pick up toward the Fed’s target, serving as evidence to some economists that policy makers should only gradually raise their benchmark interest rate. The central bank’s preferred price-growth gauge is the Commerce Department’s personal consumption expenditures measure, which hasn’t met the Fed’s 2 percent goal in four years.