Higher gasoline, rental costs boost US consumer inflation

Higher gasoline, rental costs boost US consumer inflation
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WASHINGTON (Jan 18): 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 signaling that inflation pressures could be building.

The Labor Department said on Wednesday its Consumer Price Index rose 0.3% last month after gaining 0.2% in November. In the 12 months through December, the CPI increased 2.1%, the biggest year-on-year gain since June 2014. The CPI rose 1.7% in the year to November.

The increases were in line with economists' expectations. The CPI rose 2.1% in 2016, up from a gain of 0.7% in 2015.

US Treasury prices fell and the US 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 labor market, which raises the specter 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% to 0.75% 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% last month after the same increase in November. As a result, the core CPI increased 2.2% in the 12 months through December, from 2.1% in November.

The Fed has a 2% inflation target and tracks an inflation measure which is currently at 1.6%.

Last month, gasoline prices jumped 3.0% after climbing 2.7% 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% last month, with owners' equivalent rent of primary residence also rising 0.3%. Rents increased 4.0% in 2016.

The cost of medical care rose 0.2% last month, with the prices for doctor visits unchanged. Prices for prescription medicine increased 0.2%. The cost of hospital services rose 0.3%.

There were price increases for a range of other goods and services last month including motor vehicle insurance, which increased 0.8%. The cost of airline fares rose 1.9% in December after falling 1.3% in November.