US inflation accelerated in May to the fastest pace in more than six years.
The acceleration reinforced the Federal Reserve’s outlook for gradual interest-rate hikes while eroding wage gains that remain relatively tepid despite an 18-year low in unemployment.
The consumer price index rose 0.2% from the previous month and 2.8% from a year earlier, matching estimates, a United States Labour Department report showed Tuesday.
The annual gain was the biggest since February 2012 and follows a 2.5% increase in April.
Excluding food and energy, the core gauge was up 0.2% from the prior month and 2.2% from May 2017, also matching the median estimates of economists.
The pickup in headline inflation partly reflects gains in fuel prices, though the annual gain in the core measure - seen by officials as a better gauge of underlying inflation trends - was the most since February 2017.
While the Fed is widely projected to raise borrowing costs this week for the sixth time in 18 months, the path of inflation will figure into policy makers’ thinking on the pace of increases for the second half and in 2019.
Economist at NatWest Markets Kevin Cummins said he data “provides further evidence that inflation is moving towards the Fed’s objective,” and that the central bank will continue on its gradual rate-hike path.
The pay figures are “a reminder that you don’t need to necessarily get more aggressive in your approach because wages haven’t accelerated as much as they have in the past,” he said.
The Fed’s preferred gauge of inflation - a separate consumption-based figure from the Commerce Department - came in at the central bank’s 2% goal during March and April, and the figure tends to run slightly below US CPI.
At the same time, several Fed officials have indicated that a modest overshoot of the inflation goal would not necessarily warrant faster interest-rate hikes, after years of below-target price gains. Commerce Department figures released 31 May showed the Fed’s preferred gauge of core prices was up 1.8% in April from a year earlier.
A separate Labour Department report on Tuesday illustrated how higher prices are pinching wallets: average hourly wages, adjusted for inflation, were unchanged in May from a year earlier, even as nominal pay accelerated to a 2.7% annual gain from 2.6% in April. For production and non-supervisory workers, real average hourly earnings fell 0.1% from a year earlier.
Seasonally adjusted gasoline prices rose 1.7% in May from the previous month, after a 3% gain in April.