The cost of living excluding food and fuel rose at a faster pace than expected in April, indicating inflation is inching toward the Federal Reserve’s goal.
The core consumer-price index climbed 0.3%, the biggest gain since January 2013, reflecting broad-based increases, a Labor Department report showed May 22 in Washington. The median forecast of 84 economists surveyed by Bloomberg News called for a 0.2% advance. Prices including food and fuel rose 0.1%.
Costs will probably continue to increase as fuel expenses stabilize and a lack of apartments pushes up rents, one of the biggest categories. Further firming in price pressures should help Federal Reserve policymakers gain confidence that inflation will move toward their 2% goal as they consider their first interest-rate rise since 2006.
“Potentially, things are building in terms of inflation faster than we thought,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. “If core inflation really is firming, then all of a sudden that starts putting pressure on the Fed.”
Stock-index futures and Treasury securities dropped after the report on concern a pickup in inflation would cause Fed policy makers to raise interest rates later this year.
Energy costs decreased 1.3% in April after rising 1.1% a month earlier. Food costs were little changed.
Restrained food and energy costs are helping prop up Americans’ spending power. Hourly wages adjusted for inflation increased 2.3% over the past 12 months on average, compared with a 2.1% gain in the year ended March, according to a separate report from the Labor Department issued May 22.
The advance in the core index last month was bolstered by prices for rents, used cars and trucks, and medical care, which showed the biggest increase since January 2007.
Inflation will need to keep rising in order for Fed officials to be “reasonably confident” that progress on their price stability mandate is sufficient to allow for an increase in the benchmark interest rate. The officials’ preferred measure of price growth, the personal consumption expenditures gauge, rose 0.3% in the year ended March and hasn’t met the Fed’s goal since April 2012.
The Fed officials will announce the start of interest-rate increases at their September meeting, according to 42 of 54 economists surveyed by Bloomberg May 8-13.
Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.
While the labor market is nearing full strength, “we are not there yet,” she said May 22 in a speech in Providence, Rhode Island.
A rout in global oil markets in the second half of 2014 still might be keeping airfares from rising at a faster pace as airlines enjoy cheaper fuel costs.
