U.S. monthly consumer prices increase moderately in May

U.S. monthly consumer inflation rose moderately in May as gasoline price increases slowed, suggesting the Federal Reserve could continue to gradually raise interest rates this year.

Prices for apparel and recreation were unchanged in May - Reuters

The Labor Department’s inflation report was published ahead of the start of the Fed’s two-day policy meeting on Tuesday. Steadily rising inflation and a tightening labour market are seen encouraging the U.S. central bank to hike rates for a second time this year on Wednesday.

“Neither too hot nor too cold,” said Michael Feroli, an economist at JPMorgan in New York. “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 Consumer Price Index increased 0.2 percent last month, also as food prices were unchanged. That followed a similar gain in the CPI in April. In the 12 months through May, the CPI accelerated 2.8 percent, the biggest advance since February 2012, after rising 2.5 percent in April. Prices for apparel and recreation were unchanged in May.

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.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, supported by a rebound in new motor vehicle prices and a pickup in the cost of healthcare, after edging up 0.1 percent in April.

That lifted the year-on-year increase in the so-called core CPI to 2.2 percent, the largest rise since February 2017, from 2.1 percent in April.

The Fed tracks a different inflation measure, which is just below its 2 percent target. Economists are divided on whether policymakers will signal one or two more rate hikes in their statement accompanying the rate decision on Wednesday.

“The slow but steady upward pressure on inflation could tilt a majority of policymakers to lift their suggested interest rate forecast, possibly pencilling 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.

The dollar was little changed against a basket of currencies while prices for U.S. Treasuries fell slightly. Stocks on Wall Street were trading higher.

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