Consumer price rise in US could provide fuel for interest rate rise
Print Edition
CONSUMER prices in the United States 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 released yesterday showed housing starts and industrial production rebounded strongly last month, suggesting the economy was regaining steam early in the second quarter.
“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 so-called core CPI, which strips out food and energy costs, rose 0.2 percent after climbing 0.1 percent in March. In the 12 months through April, the core CPI increased 2.1 percent after increasing 2.2 percent in March.
The Fed has a 2 percent inflation target and tracks an inflation measure that is currently at 1.6 percent.
The rise in prices in April is likely to be welcomed by Fed officials who last month softened their language on inflation at the end of a regular meeting, saying it continued to run below target because of “earlier declines in energy prices and falling prices of non-energy imports.”
Financial markets have almost priced out a rate hike before September, given sluggish growth at the beginning of the year. The US central bank lifted its benchmark overnight interest rate in December for the first time in nearly a decade and policy-makers have forecast two more increases this year.
In a separate report, the Commerce Department said housing starts rose 6.6 percent to a seasonally adjusted annual pace of 1.2 million units last month, with builders ramping up the construction of single and multi-family homes. Building permits rose 3.6 percent to a 1.1-million-unit rate.
A third report from the Fed showed industrial production increased 0.7 percent in April after two straight months of declines.
Manufacturing output rose 0.3 percent, reversing March’s 0.3 percent decrease.
Utilities production jumped 5.8 percent in April, but mining output fell 2.3 percent.
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