Rising rents lift US inflation; labour market tightens

WASHINGTON: Rising rents lifted underlying US inflation in November, pointing to a steady build-up of price pressures in the economy that could support more interest rate increases from the Federal Reserve next year.
The prospects of further monetary policy tightening in 2017 were also bolstered by other data on Thursday showing a drop in the number of Americans filing for unemployment aid last week.
The Fed raised interest rates on Wednesday for the second time since the 2007-2009 financial crisis and forecast three rate hikes in 2017. In addition to rising oil prices and a tight job market, inflation is likely to get a boost from US President-elect Donald Trump’s proposed expansionary fiscal policy agenda.
“Inflation is moving in the right direction, all the conditions for stronger inflation are in place. I don’t think the Fed is behind the curve. We expect the next rate increase in March,” said Ryan Sweet, senior economist at Moody’s Analytics in Westchester, Pennsylvania.
The Labour Department said its Consumer Price Index excluding volatile food and energy costs rose 0.2 per cent last month after edging up 0.1 per cent in October. Rents accounted for most of the increase in the so-called core CPI last month.
The core CPI advanced 2.1 per cent in the 12 months through November after a similar gain in October. The overall CPI rose 0.2 per cent as gasoline price increases slowed and food costs remained soft. With oil prices hovering around $50 per barrel, gasoline prices are likely to push higher.
The overall CPI shot up 0.4 per cent in October. In the 12 months through November, the CPI increased 1.7 per cent, the biggest year-on-year gain since October 2014. It rose 1.6 per cent in the year to October.
The Fed has a 2 per cent inflation target and tracks an inflation measure which is currently at 1.7 per cent.
In raising its benchmark overnight interest rate by 25 basis points to a range of 0.50 per cent to 0.75 per cent, the US central bank on Wednesday noted that inflation had increased since “earlier this year” and said it expected it to rise to its target “over the next couple of years.”
Fed Chair Janet Yellen said the rate hike was “a vote of confidence in the economy.”
The incoming Trump administration plans to boost infrastructure spending and cut taxes to foster a faster pace of economic growth. The fiscal stimulus, however, will come at a time when the economy is expected to be at full employment. — Reuters