"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".
- MUFG Union Bank
The US consumer prices softened in the previous month, but still posted increases in housing and healthcare costs thus supporting inflation, which could still allow Federal Reserve to raise interest rates during the current year. According to the Labour Department release made on Thursday, consumer price index advanced 0.2% in May after rising 0.4% in April. Meanwhile, on a yearly pace, the CPI added 1.0% after accelerating 1.1% in April. Economists, in turn, predicted the CPI to gain 0.3% last month and advance 1.1% from a year ago. The overall increase in consumer prices could be explained by higher gasoline prices as well as rising rents. The so-called core CPI, which do not include food and energy costs, in turn, went up 0.2% in line with April data. That took the year-on-year core CPI rise to 2.2% from 2.1% in April.
In the meantime, another report released in the same day posted an advance in the number of Americans applying for unemployment benefits last week. Moreover, the trend remains to be consistent implying a healthy labour market. The following data came a day after the Fed lowered its assessment of the jobs market and suggested a lower probability of interest rate hikes. The Fed has a 2% inflation target and tracks an inflation measure which is currently at 1.6%.
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