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US CPI edges past forecasts, hits six-year high

By Alexander Bueso

Date: Tuesday 12 Jun 2018

US CPI edges past forecasts, hits six-year high

(Sharecast News) - The cost of living in the US hit a six-year high last month, pushed higher by big jumps in the prices of gasoline and medical care commodities, together with sustained strength in shelter prices.
The US consumer price index advanced at a 0.2% month-on-month pace in May, according to the Bureau of Labor Statistics.

In comparison to a year ago, the so-called headline rate of CPI was up by 2.8%, following a reading of 2.5% for April.

Economists had forecast increases of 0.2% on the month and 2.7% on the year.

A 1.7% month-on-month rise in gasoline prices fuelled the CPI increase, with a 1.3% climb in medical care commodities' prices adding to the inflation pressures.

Combined with the year earlier 5.3% drop in gasoline prices, the former was the chief culprit behind the increase in the annual CPI rate.

'Core' prices, which exclude those for food and energy, advanced at a year-on-year pace of 2.2% in May - a 15-month high - which was up from 1.5% in the month before, as expected.

"We expect it will trend gradually higher from here, as greater wage pressures feed through to higher selling prices, and the drag from used vehicles and airfares fades," said Capital Economics's Michael Pearce.

"The Fed's preferred core PCE measure of inflation will be lifted further by a rise in administered healthcare prices. Under those circumstances, we expect the Fed will continue raising interest rates once a quarter."

Shelter prices were also more dear last month, rising by 0.3% versus April.

For their part, Pooja Sriram and Michael Gapen at Barclays said: "Looking further out, we expect fiscal stimulus to keep the US economy in an above-trend growth path, leading to increased resource utilization over time, which is likely to lead to a modest overshoot of inflation above the Fed's 2% target.

"Data on current PCE inflation and labor markets suggest the Fed has largely met its dual mandate. Yet, we do not view current inflation trends as likely to cause the Fed to move faster or alter its view that monetary policy should be normalized gradually."

In reaction to the data, as of 1351 BST the yield on the benchmark 10-year US Treasury note was up by two basis to 2.97%, alongside an identical increase in two-year note yields to 2.54%.

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