US underlying inflation rose at the highest rate in almost 1-1/2 years in June, possibly easing some of the pressure on the Federal Reserve to take aggressive monetary action. A rate cut at the July 30-31 policy meeting, the first in a decade, is nearly certain after Fed Chairman Jerome Powell on Wednesday told lawmakers the USA central bank would "act as appropriate" to protect the economy from rising risks such as trade tensions and slowing global growth.
The Labor Department said on Thursday that its consumer price index (CPI) excluding the volatile food and energy components rose 0.3 per cent last month. "This argues against aggressive monetary stimulus from the central bank", said Chris Rupkey, chief economist at MUFG in NY. Year-over-year Core CPI (ex Food and Energy) came in at 2.13%, up from the previous month's 1.99% and above the Fed's 2% PCE target. Along with the indexes for shelter, used cars and trucks, and apparel, the indexes for household furnishings and operations, medical care, and motor vehicle insurance were among the indexes that increased in June.
The tobacco and liquor sector rose 1 per cent, with the average cost of beer increasing by 2 per cent and the cost of wine rising by 1.6 per cent.
The overall consumer price index rose 0.1% in June, held back by cheaper gasoline and food.
The rent sector was the largest contributor to the year-on-year change, increasing 1.8 per cent. The core index is up 2.1 percent compared to a year ago. The CPI rose 0.1 per cent in May. Following June's solid increase in the core CPI, Fed officials will be watching to see if that translates into a rebound in both consumers' and market-based inflation expectations, which have dropped over the past year.
CPI and PPI are not the Fed's preferred measures of underlying inflation in the US economy - that designation is reserved for the core personal consumptions expenditures (PCE) price index, released by the Bureau of Economic Analysis (BEA).
"This month's bounce in goods inflation was due primarily to two of the more volatile categories in the series: vehicles and apparel", said senior U.S. economist Eric Winograd of global asset management firm AllianceBernstein.
Initial claims for state unemployment benefits declined 13,000 to a seasonally adjusted 209,000 for the week ended July 6, the lowest level since April, the Labor Department said on Thursday.
Economists polled by Reuters had forecast the CPI to be unchanged in June and rising 1.6 per cent year-on-year.
The food sector declined by 0.2 per cent in April.
The rent sector dipped 0.1 per cent. Healthcare costs increased 0.3 per cent, after a similar advance in May. In May, prices rose by 1.4% annually.