Inflation hits 6-year high
Fed to continue its gradual rate-hike path
U.S. inflation accelerated in May to the fastest pace in more than six years, reinforcing the Federal Reserve’s outlook for gradual interest rate hikes while eroding wage gains that remain relatively tepid despite an 18-year low in unemployment.
The consumer price index rose 0.2 percent from the previous month and 2.8 percent from a year earlier, matching estimates, a Labor Department report showed Tuesday. The annual gain was the biggest since February 2012 and follows a 2.5 percent increase in April. Excluding food and energy, the core gauge was up 0.2 percent from the prior month and 2.2 percent from May 2017, also matching the median estimates of economists.
The pickup in headline inflation partly reflects gains in fuel prices, though the annual gain in the core measure was the most since February 2017.
The data “provide further evidence that inflation is moving towards the Fed’s objective,” and the central bank will continue on its gradual rate-hike path, said Kevin Cummins, an economist at NatWest Markets.
A separate Labor Department report on Tuesday illustrated how higher prices are pinching wallets: average hourly wages, were unchanged in May from a year earlier, even as nominal pay accelerated to a 2.7 percent annual gain from 2.6 percent in April. For production and nonsupervisory workers, real average hourly earnings fell 0.1 percent from a year earlier.