The cost of living in the US excluding food and fuel rose in May, propelled by rising rents.
The so-called core measure of the consumer price index rose 0.2% last month, the same as in April, a Labour Department report showed yesterday in Washington. The broader measure of consumer prices also climbed 0.2%.
Federal Reserve policy makers project strengthening demand combined with more stable energy costs and less appreciation in the dollar will allow more businesses to regain pricing power in coming months. The officials, who voted on Wednesday to leave interest rates unchanged, said they expect inflation will move toward their goal in the medium term.
“Inflation is on track to continue to rise toward the Fed’s 2% target,” said Tom Simons, a money-market economist at Jefferies in New York, who correctly projected the gain in core CPI. “It’s not going to be a rapid process though. The core will continue to be supported by housing.”
A separate report from the Labour Department showed applications for jobless benefits last week rose by 13,000 to a one-month high of 277,000. The gain was led by California and Pennsylvania, and may have resulted from the difficulty in adjusting the data for the Memorial Day holiday and school vacations, a government spokesman said.
The median forecast of 86 economists surveyed by Bloomberg projected consumer prices would rise 0.3% in May. Estimates ranged from gains of 0.2% to 0.6%.
The gauge increased 1% in the 12 months ended in May, after a 1.1% year-over-year advance.
The core CPI measure, which excludes volatile food and fuel costs, increased 2.2% from May 2015, after rising 2.1% in the prior 12-month period, matching the median forecast of economists surveyed.
Shelter costs, which include rents and hotel rates, climbed 0.4% in May from the prior month, the biggest advance since February 2007.
Rents rose 0.4% last month and the rental equivalent of owner-occupied houses increased 0.3%. Over the past 12 months, 60% of the increase in core consumer prices could be traced back to shelter costs, Labour said.
Energy costs increased 1.2% from the previous month, the report showed. Food prices dropped 0.2%.
Medical care prices rose 0.3%. These readings often vary from results for this category within the Fed’s preferred measure of inflation — the core PCE deflator that’s tied to consumption. Economists attribute the discrepancy to different methodologies.
The Fed’s preferred inflation gauge — the Commerce Department’s personal consumption expenditures measure — hasn’t reached the central bank’s 2% goal since April 2012. The Fed has a dual mandate of stable prices and maximum employment.
“Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2% over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labour market strengthens further,” Fed policy makers said in a statement on Wednesday following their two-day meeting.
The CPI is the broadest of three price gauges from the Labour Department because it includes all goods and services. About 60% of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
The increase in the overall cost of living restrained paychecks, separate figures from the Labour Department showed yesterday. Hourly earnings adjusted for inflation were unchanged in May from the prior month.