Consumer prices rose at 2.6% annual rate in Q1
Core inflation’s 0.3% rise in April biggest since January 2013.
Core consumer prices outside of food and energy posted the biggest increase in April in more than a year, suggesting that an improving U.S. economy is finally starting to lift prices. That could prompt the Federal Reserve to start raising interest rates later this year.
Overall consumer prices edged up 0.1 percent for the third straight climb, the Labor Department said Friday. Overall gains were held back by a 1.3 percent drop in energy costs.
But excluding food and energy, core inflation rose 0.3 percent in April, marking the biggest one-month increase since January 2013. That means core inflation has risen at an annual rate of 2.6 percent over the past three months — the fastest pace in four years.
Paul Ashcroft, chief U.S. economist at Capital Economics, said while overall inflation still remains very low, the trend in core prices is likely to spark concerns at the central bank. The Fed has kept interest rates at ultra-low levels for the past six years to help the economy recover from a deep recession.
“The Fed can’t wait forever before beginning to raise interest rates,” Ashcroft said, agreeing with many other economists that the Fed will likely start raising rates in September.
The increase in the core rate was driven by a 0.7 percent surge in medical costs, reflecting higher hospital charges.
Jennifer Lee, senior economist at BMO Capital Markets, said that both overall inflation and core prices have accelerated modestly over the past six months.
“This suggests that although inflation remains very tame, economic growth, sporadic as it is ... is helping prices stabilize instead of fall,” Lee said in a note to clients.
Overall inflation still remains very low. Consumer prices are down 0.2 percent from 12 months ago, reflecting a nearly 20 percent drop in energy prices. And even with the April increase, core prices are up a moderate 1.8 percent from a year ago.
But analysts noted price increases in a number of areas in April. In addition to medical costs, the price of used cars, household furnishings and rent payments all climbed last month.
“While inflation is not a major concern, the pattern of prices is changing,” said Joel Naroff, chief economist at Naroff Economic Advisors. “It used to be hard to find any category where costs were going up but now the opposite is true. Most categories are posting increases.”