Consumer prices edged up 0.1 percent from the previous month, when prices rose a modest 0.2 percent, the Labor Department said Friday. Overall gains were held back by a 1.3 percent drop in energy costs that offset the biggest one-month jump in medical care in eight years.
Core inflation, which excludes volatile food and energy, climbed 0.3 percent – the biggest gain in 15 months. The figure was driven higher by a 0.7 percent rise in medical care, reflecting a surge in hospital costs.
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.
Inflation pressures have been well contained since the recession despite strong gains in employment over the past year. That has given the Federal Reserve the leeway to keep interest rates at a record low for more than six years in an effort to boost a sub-par economic recovery.
“The Fed can’t wait forever before beginning to raise interest rates from near zero,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note that pegged September for a rate hike.
Consumer prices are down 0.2 percent from 12 months ago, reflecting a nearly 20 percent drop in energy prices. But excluding energy and food, prices are up 1.8 percent from a year ago.
In April, gasoline prices on a seasonally adjusted basis fell 1.7 percent after having posted increases in the past two months. The nationwide average for gasoline is currently $2.73, according to the AAA Daily Fuel Gauge. While that is up 27 cents from a month ago, it is still 91 cents below the level a year ago.
The April price report revealed gains in several areas outside of food and energy. In addition to the jump in medical costs, the price of used cars rose 0.6 percent although the price of a new car increased a more modest 0.1 percent. The cost of home furnishings rose 0.5 percent, the largest gain since September 2008. Clothing prices fell 0.3 percent, the first decline for apparel since December
Inflation by a price gauge preferred by the Federal Reserve has been running below the Fed’s 2 percent target for nearly three years. The Fed aims to keep prices rising at this level, which it views as achieving its goal of price stability. Anything below that target raises the danger of deflation, when prices fall so sharply that they can disrupt economic growth.
The Fed has kept interest rates at near zero in an effort to stimulate stronger economic growth and re-establish the millions of jobs lost during the 2007-2009 recession. Fed officials have said they want to be “reasonably confident” that inflation is headed toward their 2 percent target, which would signal a stronger economy, before they start raising rates.
With strong employment gains over the past year and economic growth expected to rebound after a winter slowdown, many economists believe the Fed will start lifting rates later this year.
Minutes of their discussions at their last meeting in April indicated that it is unlikely the first rate hike will occur at the Fed’s June meeting. Many economists are now predicting the Fed will wait until at least September.
