US core inflation accelerates amid rise in housing costs
THE UNDERLYING pace of US inflation unexpectedly accelerated in December amid increased housing costs, reinforcing the outlook for the Federal Reserve to raise interest rates several times in 2018.
Excluding food and energy, the so- called core consumer price index increased 1.8 per cent from a year earlier after a 1.7 per cent advance, including a 0.3 per cent monthly gain that topped analyst projections and was the most in almost a year.
Including all items, the broader CPI showed a smaller gain in December in line with estimates, as energy prices declined, a Labor Department report showed last Friday.
Investors’ already-firm expectations rose for a Fed interest-rate increase in March, as the data could help calm an increasingly heated debate among central bank officials over why inflation has stayed relatively placid despite solid economic growth and the lowest unemployment rate since 2000. Fed policymakers have penciled in three rate hikes in 2018 following three last year.
A separate Commerce Department report on Friday showed US retail sales rose in December and November’s gain was revised upward, indicating a robust holiday-shopping season.
“The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors,” said Lewis Alexander, chief economist at Nomura Securities International in New York, who had projected a 0.3 per cent monthly gain in core prices. “It’s in line with an economy operating at full employment.”
He said the biggest positive was the revision to the November retail data, which suggests that fourth- quarter economic growth may have been stronger than previously thought.
The 0.3 per cent monthly increase in the core CPI topped the 0.2 per cent median estimate of economists surveyed by Bloomberg. Shelter costs rose 0.4 per cent, the most since August, including a 0.4 per cent increase in rents and 0.3 per cent in owners’ equivalent rent, one of the categories designed to track rental prices.
Prices of medical care rose 0.3 per cent, as the index for prescription drugs advanced one per cent.
The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.
At the same time, the central bank’s preferred gauge of inflation – a separate figure based on consumer purchases and issued by the Commerce Department – has mostly missed its two per cent goal in the past five years. The measure excluding food and energy is also below their target. December figures are due Jan 29.
Other highlights:
• Energy prices fell 1.2 per cent from previous month after 3.9 per cent gain; food costs advanced 0.2 per cent following no change.
• Lodging away from home rose 0.8 per cent after a November decline. • Used-vehicle prices posted a 1.4 per cent gain, while the CPI for new vehicles advanced 0.6 per cent.
• Prices of airfares fell 0.5 per cent, apparel also down 0.5 per cent.
• Hourly earnings adjusted for inflation rose 0.4 per cent from December 2016, according to a separate report from the Labor Department. — WP-Bloomberg