United States core inflation rises at fastest pace in a decade

Irving Hamilton
August 12, 2018

The consumer-price index-a broad measure of Americans' living expenses, from groceries to dental care-rose 0.2% from a month earlier, the Labor Department said Friday.

The annual rate of growth in core consumer prices accelerated to 2.4 percent in July from 2.3 percent in the previous month. Excluding food and energy components, so-called core prices rose 0.2% as well. On a year-on-year basis, the headline inflation remained unchanged at 2.9 percent, while the core rate rose to 2.4 percent, reaching its highest level since September 2008.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 per cent in July.

US stock index futures were down. Fed officials see core inflation as a more reliable gauge of underlying price pressures.

Policy makers are widely projected to lift borrowing costs when they meet in September, with many investors expecting an additional hike before the end of 2018.

The Fed in June increased interest rates for the second time this year, and penciled in two more rate hikes for the year.

The Fed now forecasts a total of four rate rises in 2018, with investors expecting a final nudge upwards of the year in the benchmark overnight lending rate in December.

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"Inflation pressures are seen continuing to build amid low unemployment and increasing difficulty reported by employers in filling positions", Reuters said. Last month, petrol prices fell 0.6 per cent after increasing 0.5 per cent in June.

The data showed that prices were rising a little faster than wages, leaving the buying power of paychecks one-tenth of a percentage point lower today than a year ago, despite an otherwise healthy economy.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, advanced 0.3 percent last month after increasing by the same margin in June.

Excluding food and energy prices, the core producer price index inched up by 0.1 percent in July after climbing by 0.3 percent in the previous month. Airfares jumped 2.7 per cent, the most since July 2013, following a 0.9 per cent drop in June.

The index for shelter rose by 0.3 percent in July and accounted for almost 60 percent of the increase by the consumer price index.

Some items that posted big declines in June reversed course in July.

Information for this article was contributed by Chris Middleton and Andrew Mayeda of Bloomberg News and by Josh Boak of The Associated Press.

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