Prices hit Fed target
US consumer prices accelerated in the year to May, with a measure of underlying inflation hitting the Federal Reserve’s 2 percent target for the first time in six years.
The rise in price pressures reported by the Commerce Department on Friday will probably not shift the Fed from its stated path of gradual interest rate increases as policymakers have indicated they would not be too concerned with inflation overshooting its target.
“This doesn’t warrant the Fed turning more hawkish, as two additional rate hikes this year remain appropriate,” said Ryan Sweet, senior economist at Moody’s Analytics. “The Fed expects inflation to temporarily overshoot its inflation objective.”
The US central bank increased interest rates early this month for a second time this year and forecast two more rate hikes by the end of 2018. Inflation is pushing higher in part because of a tightening labor market, which is characterized by a 3.8 percent unemployment rate.
Consumer prices, as measured by the personal consumption expenditures (PCE) price index, rose 0.2 percent after a similar gain in April. In the 12 months through May, the PCE price index surged 2.3 percent. That was the largest rise since March 2012 and followed a 2 percent increase in April.
Excluding the volatile food and energy components, the PCE price index advanced 0.2 percent for a sixth straight month.