U.S. Inflation Undershoots Fed’s 2% Target for 37th Consecutive Month
2015-07-16
U.S. prices jumped in May, but subdued inflation continues to present a potential complication for the Federal Reserve as it inches toward raising short-term interest rates.
The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose a seasonally adjusted 0.3% from April, the Commerce Department said Thursday. It was the biggest rise in more than two years and largely reflected increased prices for energy, including gasoline. Food prices were flat, and prices excluding food and energy ticked up 0.1%.Still, for the 37th consecutive month, annual inflation undershot the central bank’s 2% target. Prices rose just 0.2% in May from a year earlier, unchanged from April, and growth in core prices slipped to 1.2% in May from 1.3% the prior month.
Fed officials have said they expect to raise short-term interest rates later this year. Their first rate increase will come when the labor market has further improved and they are “reasonably confident” inflation will soon move back to 2%, the central bank said last week.
Annual price gains should rebound in the coming months “as we move through the big plunge in oil prices” that started a year ago and pushed down energy costs, PNC Financial Services Group senior economist Gus Faucher said. He said he expects an uptick in core inflation, too, as the labor market tightens and demand strengthens.
“I think that will be enough that the Fed will feel comfortable raising rates in September,” Mr. Faucher said. “But if we don’t see that, I think that could cause the Fed to hold off a bit.”
Consumers cheered after gas prices began to tumble last summer. Prices at the pump, however, have rebounded somewhat this year. The price for a gallon of regular gasoline is $2.81, the U.S. Energy Information Administration said Monday, up from $2.04 in late January.
Still, that’s down from an average of $3.69 last June.
Another restraint on prices is the strong dollar, which makes imports into the U.S. cheaper. “Eventually I expect that impact to ebb, but it is a factor affecting the outlook,” Fed Chairwoman Janet Yellen said last week.
Monroe, Mich.-based furniture maker La-Z Boy Inc. isn’t feeling much pinch from inflation at the moment. “Last year we did have raw material price pressures and we took some price increases to cover that,” Chief Executive Kurt Darrow told analysts last week. “This year…we don’t see much of that on the horizon.”
Source: http://blogs.wsj.com/economics/2015/06/25/u-s-inflation-undershoots-feds-2-target-for-37th-consecutive-month/
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