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 Other data on Friday suggested the economy could support a
tightening of monetary policy. Housing starts surged in June and
building permits soared to a near eight-year high. Federal Reserve
Chair Janet Yellen this week affirmed the U.S. central bank was keen
to start raising interest rates later this year.
"The barriers to a Fed hike are starting to crumble. The wait for
the first rate hike may not be that much longer," said Joel Naroff,
chief economist at Naroff Economic Advisors in Holland,
Pennsylvania.
The Labor Department said its Consumer Price Index rose 0.3 percent
last month after increasing 0.4 percent in May. Last month's
increase pushed the year-on-year CPI rate into positive territory
for the first time since December.
The energy-driven disinflationary trend appears to have run its
course, with producer prices rising in June for a second straight
month.
In a separate report, the Commerce Department said groundbreaking
for new homes increased 9.8 percent to a seasonally adjusted annual
pace of 1.17 million units in June. Permits for future home
construction increased 7.4 percent to a 1.34 million-unit rate, the
highest level since July 2007.
The acceleration in housing activity should ease concerns that
economic growth slowed at the end of the second quarter after a
surprise drop in retail sales in June and continued weakness in
manufacturing.
"We are seeing strong household formation by the millennial cohort,
which is putting pressure on many local housing markets," said Peter
Ciganik, managing director at real estate investment firm GTIS
Partners in New York.
Economists anticipate that the housing market will mitigate the drag
on the economy from the struggling factory sector.
Firming price pressures, together with a tightening labor market and
strengthening housing could give the Fed confidence that inflation
will gradually rise toward its 2 percent target.
The Fed has kept its short-term interest rate near zero for more
than six years. Most economists believe the Fed will pull the
trigger on rates in September.
The dollar rose against a basket currencies on the data, while
prices for shorter-dated U.S. Treasuries fell. Stocks on Wall Street
were trading mostly lower, though strong quarterly results from
Google <GOOGL.O> boosted technology shares.
SENTIMENT EBBS
While a third report showed consumer sentiment ebbed in early July
on international concerns, morale remained at lofty levels, which
bodes well for consumer spending.
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The University of Michigan's consumer sentiment index fell to 93.3
from a reading of 96.1 in June. The July reading was the eighth
straight month above 90.0.
The acceleration in inflation in June was broad-based, with a steep
increase in egg prices. In the 12 months through June, the CPI edged
up 0.1 percent after being unchanged in May.
The so-called core CPI, which strips out food and energy costs,
increased 0.2 percent last month after rising 0.1 percent in May. In
the 12 months through June, the core CPI rose 1.8 percent after
May's 1.7 percent increase. An inflation measure tracked by the Fed
is running well below its 2 percent target.
"Inflation doesn't have to be at their target to begin normalizing
interest rates, particularly as some Fed officials are concerned
that long-term inflation expectations could become dislodged if the
central bank is too complacent," said Sohini Chowdhury, a senior
economist at Moody's Analytics in West Chester, Pennsylvania.
Last month, gasoline prices increased 3.4 percent after jumping 10.4
percent in May. Food prices rose 0.3 percent, the largest increase
since September 2014, as an outbreak of bird flu in some parts of
the country caused a shortage of eggs. Egg prices surged 18.3
percent, the biggest gain since August 1973.
Elsewhere, the index for rent increased 0.4 percent, the largest
rise since August 2013.
With the residential vacancy rate near a 22-year low as a firming
labor market boosts household formation, shelter costs are likely to
continue rising.
There were also increases in the cost of recreation, new motor
vehicles, tobacco, airline fares and personal care. These offset
declines in the prices for apparel, medical care, used cars and
trucks and household furnishings.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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