U.S. inflation reaches 2.9 per cent in June, highest in six years

Consumer prices rose in June from a year earlier at the fastest pace in more than six years, lifted by more expensive gas, car insurance, and higher rent.

The Labor Department said Thursday that the consumer price index ticked up just 0.1 per cent in June. But inflation jumped 2.9 per cent from a year earlier, the largest annual gain since February 2012. Core prices, which exclude the volatile food and energy categories, rose 0.2 per cent in June and 2.3 per cent from a year earlier.

Solid economic growth and supply bottlenecks have pushed inflation past the Federal Reserve’s two per cent target, after price gains had languished below that level for six years. That is a key reason that Fed officials expect to raise shortterm rates twice more this year.

Price gains may intensify if President Donald Trump makes good on his threat Tuesday to slap tariffs on US$200 billion of Chinese goods, including furniture, hats, and handbags. If implemented, those duties, combined with tariffs put in place last week, would mean about half of China’s imports would be subject to extra duties, likely boosting costs for consumers.

Andrew Hunter, an economist at Capital Economics, said overall inflation may decline in the coming months as the recent gas price spikes level off. Prices at the pump averaged $2.88 a gallon nationwide Thursday, down 3 cents from mid-june.

“Nonetheless, with the labour market exceptionally tight and activity expanding strongly, we think that core inflation has further to rise,” Hunter said in a research note. “The prospect of further tariffs on Chinese imports will only add to that upward pressure.”

Household appliance prices rose in June from a year earlier at the fastest pace in five years, Hunter noted, lifted by a 13 per cent increase in washing machine costs. Trump imposed tariffs on washing machines in January.

The Fed’s preferred inflation gauge has increased at a slower pace, up 2.3 per cent in the past year. But most economists expect the Fed will raise rates a total of four times this year as it attempts to keep inflation in check without cutting off growth.