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.
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While energy prices are stabilizing, a strong dollar is weighing on
underlying inflation pressures.
The so-called core CPI, which excludes food and energy costs, rose
0.1 percent, the smallest gain in five months, after a 0.3 percent
increase in April.
In the 12 months through May, the core CPI rose 1.7 percent, slowing
from a yearly increase of 1.8 percent in April.
The U.S. central bank said on Wednesday the economy was expanding
"moderately" and expressed confidence inflation would gradually move
toward its 2 percent target.
The Fed, which monitors a different inflation measure that is
running even lower than the CPI, has kept its short-term lending
rate near zero since December 2008.
Stocks on Wall Street were trading higher, while the dollar fell
marginally against a basket of currencies. Prices for longer-dated
U.S. government debt fell.
In a second report, the Labor Department said initial claims for
state unemployment benefits dropped 12,000 to a seasonally adjusted
267,000 for the week ended June 13. It was the 15th straight week
that claims held below 300,000, a threshold usually associated with
a firming labor market.
HEALTHY JOBS MARKET
The claims data covered the period in which the government surveyed
employers for the payrolls portion of June's employment report.
Jobless claims fell 8,000 between the May and June survey periods,
suggesting another month of solid job gains.
"The labor market appears to be in good health through the June
payroll survey period. This ongoing labor market resilience is
important, because it underpins our forecast of a rebound in the
economy during the remainder of 2015," said Guy Berger, an economist
at RBS in Stamford, Connecticut.
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Growth prospects were further boosted by a report from the
Philadelphia Federal Reserve Bank showing its business activity
index jumped to a reading of 15.2 in June, the highest level since
December, from 6.7 in May.
A reading above zero indicates expansion in the region's factories.
Measures of new orders and shipments also rose to their highest
levels since November.
While manufacturers reported a rise in the cost of inputs, they were
also increasing prices for their goods, a trend that supports the
view that inflation will creep higher in the months ahead.
The economy's firming tone was underscored by yet another report,
this one from the Conference Board showing its Leading Economic
Index rising 0.7 percent last month after a similar gain in April.
"Both reports provided some support to the current underlying
narrative that the positive momentum in domestic economic activity
is being sustained," said Millan Mulraine, deputy chief economist at
TD Securities in New York.
A 10.4 percent jump in gasoline prices in May accounted for most of
the increase in the CPI. It was the biggest increase since June
2009, and followed a 1.7 percent decline in April.
While food prices were unchanged for a second straight month, an
outbreak of bird flu in some parts of the country that has led to a
shortage of eggs could push up prices.
Rents increased 0.3 percent last month. 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. That,
together with expectations that a tighter labor market will spur
stronger wage growth, is expected to limit the drag on core
inflation from the dollar.
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There were increases in the cost of medical care, new motor
vehicles, airline fares, tobacco and alcoholic beverages last month.
But prices for apparel, used cars and trucks, and household
furnishings fell.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea
Ricci)
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