Rising rents, healthcare costs support U.S. underlying inflation

Thu Jun 16, 2016 2:40pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices moderated in May, but sustained increases in housing and healthcare costs kept underlying inflation supported, which could still allow a cautious Federal Reserve to raise interest rates this year.

While another report on Thursday showed an increase in the number of Americans applying for unemployment benefits last week, the trend remained consistent with a healthy labor market.

The data came a day after the Fed lowered its assessment of the jobs market and suggested a slower path to interest rate hikes.

"The economy is generating enough heat to produce some inflation, even if the Fed has worries about the long-term trend for economic growth being too weak to lift interest rates much higher for now," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Labor Department said its Consumer Price Index increased 0.2 percent last month, slowing from April's 0.4 percent gain, as gasoline prices rose modestly and the cost of food fell. In the 12 months through May, the CPI increased 1.0 percent after advancing 1.1 percent in April.

Stripping out the volatile food and energy components, the so-called core CPI increased 0.2 percent after a similar gain in April. That took the year-on-year core CPI rise to 2.2 percent from 2.1 percent in April.

The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.6 percent. The U.S. central bank on Wednesday kept interest rates unchanged and said it expected inflation to remain below its target through 2017.

Although the Fed signaled it still planned two rate hikes this year, there was less conviction. Six officials expect only a single increase, up from one in March.   Continued...

 
A job seeker listens to a recruiter from the Federal Bureau of Prisons at a health care job fair sponsored by the Colorado Hospital Association in Denver, U.S., May 9, 2016.  REUTERS/Rick Wilking