The steady climb in U.S. inflation continued in May as the rising cost of gas helped push consumer prices to their biggest annual gain in more than six years.
As The Wall Street Journal reports, “Inflation, long sluggish in the wake of the 2007-09 recession, picked up in recent months,” with the Federal Reserve watching closely as it weighs the path of short-term interest rates.
Ahead of the Fed’s Wednesday policy meeting, the Labor Department reported Tuesday that the Consumer Price Index increased 0.2% last month as gas prices rose 1.7%. Food prices were unchanged after rising 0.3 percent in April.
In the 12 months through May, the CPI accelerated 2.8%, the biggest advance since February 2012, after rising 2.5% in April. But core prices — which exclude the volatile food and energy categories — have risen a milder 2.2% over the past 12 months.
“Neither too hot nor too cold,” Michael Feroli, an economist at JPMorgan in New York, told Reuters. “As such, today’s news won’t change the terms of the inflation debate, and is likely to do little to stir the pot at the Fed meeting.”
The Fed’s preferred inflation measure is currently running below its 2% target though economists expect the core personal consumption expenditures index will exceed that level this year.
“The slow but steady upward pressure on inflation could tilt a majority of policymakers to lift their suggested interest rate forecast, possibly penciling in two additional moves in the second half of the year after almost certainly raising rates tomorrow,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
According to Reuters, the surge in the annual CPI “is largely the result of last year’s weak readings, which were driven by big declines in the prices of cell phone service plans and doctor fees, falling from the calculation.”
The “more modest short-term run rates tell us that actual price pressures remain more subdued,” AllianceBernstein Holdings Senior Economist Eric Winograd told the WSJ.
Shelter costs rose 0.3% in May after a similar gain in April, while healthcare costs gained 0.2% last month.