U.S. Consumer Prices Increase Strongly

U.S. consumer prices in May recorded their largest increase in more than two years as gasoline prices surged, suggesting the drag on inflation from lower oil prices was fading.  Other data on Thursday showed the economy was regaining momentum after stumbling in the first quarter. The number of Americans filing new applications for unemployment benefits fell last week to a near 15-year low and factory activity in the mid-Atlantic region accelerated to a six-month high in June.

Price stability and a strengthening economy, highlighted by the tightening labor market, likely will push the Federal Reserve a step closer to raising interest rates later this year. Still, rate hikes will probably be gradual as a strong dollar continues to dampen underlying price pressures.  “We think inflation will grind higher over the summer and open the door to a September rate hike. At the same time, low underlying inflation pressures mean the tightening cycle will only be gradual,” said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York.

The Consumer Price Index rose 0.4 percent last month after gaining 0.1 percent in April, the Labor Department said. That was the largest increase since February 2013, and left the CPI unchanged in the 12 months through May after a 0.2 percent yearly decline in April.  While energy prices are stabilizing, a strong dollar is weighing on underlying inflation pressures.

Reuters

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