Rising shelter
and medical care costs boosted underlying U.S. inflation pressures in
April, a welcome sign for the Federal Reserve as it contemplates raising
interest rates this year.
The
Labor Department said on Friday its Consumer Price Index, excluding
food and energy, increased 0.3 percent last month. It was the largest
rise in the so-called core CPI since January 2013 and followed a 0.2
percent gain in March.
Economists who had expected core inflation to increase 0.2 percent last month said the increase, which also reflected gains in the prices of household furnishings and new and used motor vehicles, should keep the U.S. central bank on track to hike rates before the end of 2015.
"It will give the Fed greater confidence that inflation will indeed make it to its target in the next couple of years, it increases the odds of faster Fed action," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
In a speech in Providence, Rhode Island, Fed Chair Janet Yellen said she expected rates to rise this year, adding that the lift-off hinged on a firmer jobs market and signs that inflation was moving toward the Fed's target.
"I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium-term," Yellen said.
The dollar was trading higher against a basket of currencies on the inflation data and Yellen's comments. Prices for U.S. government bonds fell, while U.S. stocks were little changed.
Although slower economic growth in the first half of the year has diminished the chances of a mid-year rate hike, a tightening labor market and rising demand for housing suggest core inflation could continue to push higher this year even if medical costs subside.
Minutes of the Fed's April meeting released on Wednesday said "many" policymakers did not believe that the data by June "would provide sufficient confirmation that the conditions" for raising the key short-term interest rate had been meet.
A recent batch of weak data, including April industrial production and retail sales, has left many economists even doubting the Fed will raise rates in September.
Economists who had expected core inflation to increase 0.2 percent last month said the increase, which also reflected gains in the prices of household furnishings and new and used motor vehicles, should keep the U.S. central bank on track to hike rates before the end of 2015.
"It will give the Fed greater confidence that inflation will indeed make it to its target in the next couple of years, it increases the odds of faster Fed action," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
In a speech in Providence, Rhode Island, Fed Chair Janet Yellen said she expected rates to rise this year, adding that the lift-off hinged on a firmer jobs market and signs that inflation was moving toward the Fed's target.
"I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium-term," Yellen said.
The dollar was trading higher against a basket of currencies on the inflation data and Yellen's comments. Prices for U.S. government bonds fell, while U.S. stocks were little changed.
Although slower economic growth in the first half of the year has diminished the chances of a mid-year rate hike, a tightening labor market and rising demand for housing suggest core inflation could continue to push higher this year even if medical costs subside.
Minutes of the Fed's April meeting released on Wednesday said "many" policymakers did not believe that the data by June "would provide sufficient confirmation that the conditions" for raising the key short-term interest rate had been meet.
A recent batch of weak data, including April industrial production and retail sales, has left many economists even doubting the Fed will raise rates in September.
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