U.S. inflation, housing data bolster rate hike argument

Fri Jul 17, 2015 2:13pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices rose for a fifth straight month in June as the cost of gasoline and a range of other goods increased, further signs of firming inflation that strengthen the case for an interest rate hike this year.

Other data on Friday suggested the economy could support a tightening of monetary policy. Housing starts surged in June and building permits soared to a near eight-year high. Federal Reserve Chair Janet Yellen this week affirmed the U.S. central bank was keen to start raising interest rates later this year.

"The barriers to a Fed hike are starting to crumble. The wait for the first rate hike may not be that much longer," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Labor Department said its Consumer Price Index rose 0.3 percent last month after increasing 0.4 percent in May. Last month's increase pushed the year-on-year CPI rate into positive territory for the first time since December.

The energy-driven disinflationary trend appears to have run its course, with producer prices rising in June for a second straight month.

In a separate report, the Commerce Department said groundbreaking for new homes increased 9.8 percent to a seasonally adjusted annual pace of 1.17 million units in June. Permits for future home construction increased 7.4 percent to a 1.34 million-unit rate, the highest level since July 2007.

The acceleration in housing activity should ease concerns that economic growth slowed at the end of the second quarter after a surprise drop in retail sales in June and continued weakness in manufacturing.

"We are seeing strong household formation by the millennial cohort, which is putting pressure on many local housing markets," said Peter Ciganik, managing director at real estate investment firm GTIS Partners in New York.   Continued...

 
Shoppers are reflected in a window as they walk though Times Square in New York November 30, 2014.    REUTERS/Carlo Allegri