Housing, autos drive US inflation higher in June

RISING prices for housing, used cars and medical care helped drive US consumer inflation higher last month despite flat or fa lling costs for food and f uel, t he government reported on Thursday.

The hotter-t han-expected inflation numbers come as t he Federa l Reser ve (Fed) is poised to cut interest rates for t he first time in a decade, due to fears of a globa l economic slowdown and uncertainties f uelled by trade conflicts.

The absence of inflation in recent years despite solid economic grow th removed pressure on the US centra l bank to keep ra ising t he benchmark lending rate, but the surprise jump i n June might put in doubt any furt her Fed rate cuts t his year.

CPI up, utilities down

The Consumer Price Index (CPI), which tracks costs for household goods and serv ices, rose 0.1 per cent compared to May, a notch above analyst forecasts, t he Labor Department reported.

Petrol and fuel oil, electricity and piped natural gas all fell, but the costs for shelter – rent and the equivalent expense for homeowners – surged compared to May and have been rising steadily amid a tight housing market.

Meanwhile, used car prices spiked 1.6 per cent and an uptick in medical care costs a lso helped lif t t he index, according to the data. Household furnishings were up 0.8 per cent, t he biggest jump in 28 years.

Excluding t he volatile food and energ y categories, t he closely-watched “core” CPI rose 0.3 per cent compared to May – t he largest onemonth gain in 18 months.

But inflation remains tame over t he past year, wit h t he CPI slow ing to 1.6 per cent compared to June last year, t wo tenths of a point lower than in May and the second st ra ight year-on-year decline. The core i ndex is up 2.1 per cent compared to a year ago.

The Fed is due to hold its next policy meeting at t he end of this month and in congressiona l testimony on Wednesday, Fed chairman Jerome Powell said many centra l bankers believed t he case for a rate cut had “strengthened” in recent weeks.

Analysts don’t expect t he inflation data to change the Fed’s plan to cut the key lending rate at t he end of t he month.

“This report won’t stop t he Fed from easing on the 31st but it does suggest t hat a 50 [basis point] cut would be risk y,” Ian Shepherdson of Pantheon Macroeconomics said in a client note.