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 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.
The central bank has kept overnight interest rates near zero since
December 2008. It tracks a price measure that is running below core
CPI.
In the 12 months through April, core CPI advanced 1.8 percent after
a similar gain in March.
"September is still the most likely lift-off date, but July is not
out of the question, particularly not if we get another couple of
robust rises in core consumer prices in May and June," said Paul
Ashworth, chief economist at Capital Economics in Toronto.
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FADING DOLLAR RALLY
A fading dollar rally also was seen keeping core inflation on an
upward trend. The dollar surged about 15 percent against the
currencies of the United States' main trading partners between June
last year and mid-March. It has handed back some of those gains and
is now up only 10 percent.
"If sustained, that should help weakness in core goods prices
continue to moderate," said Ted Wieseman, an economist at Morgan
Stanley in New York.
The overall CPI edged up 0.1 percent last month after increasing 0.2
percent in March. It was held back by a 1.7 percent drop in gasoline
prices and no change in food prices. Gasoline prices, however, have
since risen.
In the 12 months through April, the CPI fell 0.2 percent, the
largest decline since October 2009, after dipping 0.1 percent in
March.
Core inflation was lifted by a 0.3 percent increase in shelter
costs, which followed a similar gain in March. Shelter inflation is
being driven by rising household formation, which is boosting demand
for rental accommodation.
The medical care index rose 0.7 percent, the largest rise since
January 2007. Household furnishings posted their largest gain since
September 2008.
Prices for new and used cars and trucks rose for a third straight
month. Airline fares, however, fell, as did apparel prices, which
recorded their first drop since December.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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