Jun 27, 2018
The numbers: A measure that tracks consumer prices shows the cost of living is increasing at the fastest pace in six years, reflecting a strong U.S. economy and ultra-tight labor market that’s stoking inflation.
The consumer price index increased 0.2% in May, the government said Tuesday, in line with Wall Street’s forecast. The report came out one day before a Federal Reserve meeting in Washington that’s expected to result in another increase in U.S. interest rates.
A more closely followed measure that strips out food and energy also rose 0.2% last month. It’s known as the core rate of inflation.
The consumer price index has risen 2.8% in the past 12 months,
up from 2.5% in April. That’s the fastest rate since early
The yearly increase in the core rate edged up to 2.2%.
What happened: The increase in the cost of living last month was spearheaded by the rising cost of gasoline, medical care and shelter — rent and home prices.
The cost of medical care has accelerated again after a slowdown toward the end of 2017. Ditto for rents and home prices. Gasoline prices have climbed after what the IEA calls solid demand, reduced OPEC output and geopolitical developments.
Americans are paying less for new and used cars, airline fares and communications services such as wireless and cable, but that hasn’t been nearly enough to offset a broad increase in prices.
The steady uptick in inflation is taking a bite out of household income. Real or inflation-adjusted hourly wages rose a meager 0.1% in May, and they are unchanged over the past year.
Big picture: On guard for rising inflation, the Fed was already poised to raise a key U.S. interest rate. The central bank is expected to take action Wednesday after the end of a two-day meeting.
The big question now is whether the Fed raises rates one more time before the end of 2018, as previously planned, or takes a more aggressive approach as many on Wall Street now expect.
The answer is likely to be found in inflation readings over the summer. If inflation tapers off around the Fed’s 2% target, the central bank is likely to stay the course. Yet if prices keep rising and the economy remains strong, the Fed could lift rates at least twice more this year.