Higher gasoline, rental costs boost US inflation

WASHINGTON: US consumer prices rose in December as households paid more for gasoline and rental accommodation, leading to the largest year-on-year increase in 2½ years and signalling that inflation pressures could be building.
The Labour Department said on Wednesday its Consumer Price Index rose 0.3 per cent last month after gaining 0.2 per cent in November. In the 12 months through December, the CPI increased 2.1 per cent, the biggest year-on-year gain since June 2014. The CPI rose 1.7 per cent in the year to November.
The increases were in line with economists’ expectations. The CPI rose 2.1 per cent in 2016, up from a gain of 0.7 per cent in 2015.
US Treasury prices fell and the dollar strengthened against the euro and yen after the data. US stock index futures were trading higher.
Rising inflation comes against the backdrop of a strengthening economy and tightening labour market, which raises the spectre of a faster pace of interest rate increases from the Federal Reserve than currently anticipated.
The US central bank has forecast three rate hikes this year. It raised its benchmark overnight interest rate by 25 basis points to a range of 0.50 per cent to 0.75 per cent last month.
Price pressures are likely to remain on an upward trend amid expectations of fiscal stimulus from the incoming Trump administration. Republican businessman-turned-politician Donald Trump, who will be sworn in as US president on Friday, has pledged to increase spending on infrastructure and cut taxes.
The so-called core CPI, which strips out food and energy costs, rose 0.2 per cent last month after the same increase in November. As a result, the core CPI increased 2.2 per cent in the 12 months through December, from 2.1 per cent in November.
The Fed has a 2 per cent inflation target and tracks an inflation measure which is currently at 1.6 per cent. Last month, gasoline prices jumped 3.0 per cent after climbing 2.7 per cent in November. Food prices were unchanged for a sixth straight month. The cost of food consumed at home dropped for an eighth consecutive month.
Within the core CPI basket, housing continued its upward march in December. Rents increased 0.3 per cent last month, with owners’ equivalent rent of primary residence also rising 0.3 per cent. Rents increased 4.0 per cent in 2016.
The cost of medical care rose 0.2 per cent last month, with the prices for doctor visits unchanged. Prices for prescription medicine increased 0.2 per cent. The cost of hospital services rose 0.3 per cent.
There were price increases for a range of other goods and services last month including motor vehicle insurance, which increased 0.8 per cent. The cost of airline fares rose 1.9 per cent in December after falling 1.3 per cent in November.
— Reuters