US Consumer Prices Post Largest Gain In Three Years, Housing Starts Up

a Walmart Supercenter in Rogers, Arkansas
a Walmart Supercenter in Rogers, Arkansas

UNITED States consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year.

Other data on Tuesday showed housing starts rose more than expected last month, with builders ramping up the construction of single and multi-family homes, suggesting the economy was regaining steam early in the second quarter.

The Labor Department said its Consumer Price Index increased 0.4 percent last month, the largest gain since February 2013, after rising 0.1 percent in March. That took the year-on-year increase in the CPI to 1.1 percent from 0.9 percent in March.

Americans also paid more for medical care, food, recreation, tobacco, motor vehicle insurance, airline fares and grooming. Economists polled by Reuters had forecast the CPI gaining 0.3 percent last month and advancing 1.1 percent from a year ago.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent after climbing 0.1 percent in March. In the 12 months through April, the core CPI increased 2.1 percent after increasing 2.2 percent in March.

The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.6 percent.

The rise in prices in April is likely to be welcomed by Fed officials who last month softened their language on inflation at the end of a regular meeting, noting that it continued to run below target because of “earlier declines in energy prices and falling prices of non-energy imports.”

Financial markets have almost priced out a rate hike before September, given sluggish growth at the beginning of the year. The U.S. central bank lifted its benchmark overnight interest rate in December for the first time in nearly a decade and policymakers have forecast two more increases this year.

The dollar rose to a session high against the euro after the data, while U.S. Treasury debt prices fell.

Source: Reuters