U.S. consumer prices show inflation ticking up

Tue Jun 17, 2014 1:01pm EDT
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By Lucia Mutikani

WASHINGTON, (Reuters) - U.S. consumer prices recorded their largest increase in more than a year in May as costs for a range of goods and services rose, likely easing the Federal Reserve's concerns that inflation was running too low.

The Labor Department said on Tuesday its Consumer Price Index increased 0.4 percent last month, with food prices posting their biggest rise since August 2011.

Economists, who had expected consumer prices to rise only 0.2 percent, said the increase suggested a separate inflation gauge watched by the Fed also pushed higher in May, although it would still fall short of the central bank's 2 percent target.

"Consumer prices are gaining traction, suggesting inflation is moving close to the Fed's target," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "Fed officials will have to acknowledge the firming price environment."

Fed officials who started a two-day policy meeting on Tuesday will evaluate the data among other reports that have given bullish signals on the economy.

The Fed is expected to further trim its monthly bond buying program, but it is expected to hold off raising interest rates until some time next year to let the economy gather strength.

The broadening rise in prices should reassure Fed officials who have expressed concerns that inflation was too low, and it led some investors to raise bets the central bank would hike interest rates before the middle of 2015.

"At the margin, today's inflation print further tilts the odds toward an earlier first rate hike relative to our current fourth quarter of 2015 call," said Michael Feroli, an economist at JPMorgan in New York.   Continued...

The price of bread is seen on a store shelf in New York April 7, 2011.REUTERS/Lucas Jackson