U.S. consumer prices rose less than expected in April, suggesting that inflation was increasing at a moderate pace, which could allow the Federal Reserve to continue gradually raising interest rates.
But with the labor market tightening and oil prices rising after President Donald Trump on Tuesday pulled the United States out of an international nuclear deal, promising to restore stiff sanctions on Iran, price pressures are expected to accelerate in the coming months.
Inflation is flirting with the U.S. central bank's 2 percent target. Policymakers have in recent days signalled they would not be too concerned if inflation overshot the target, reiterating what the Fed said in its statement last week.
Consumer Price Index
The Labor Department said its Consumer Price Index rose 0.2 percent in April as increases in the cost of gasoline and rents were tempered by a drop in motor vehicle prices. The CPI had slipped 0.1 percent in March.
"The sources of the weakness in last month's reading do not suggest the onset of a trend shift lower," said Michael Feroli, an economist at JPMorgan in New York. "Today's number would not deter the Fed from hiking (interest rates) again next month."
In the 12 months through April, the CPI increased 2.5 percent, the biggest gain since February 2017. That followed a 2.4 percent rise in the year to March.
Excluding the volatile food and energy components, the CPI edged up 0.1 percent after two successive monthly increases of 0.2 percent. The so-called core CPI rose 2.1 percent year-on-year in April, matching March's increase.
Economists had forecast the CPI rebounding 0.3 percent in April and the core CPI climbing 0.2 percent.
Personal Consumption
The personal consumption expenditures price index excluding food and energy, which is the Fed's preferred inflation measure, accelerated 1.9 percent year-on-year in March, as last year's big declines in the price of cell phone service plans dropped out of the calculation.
Economists expect the core PCE price index, which had increased 1.6 percent in February, to breach the 2 percent target in May.
In their policy statement last week, Fed officials said they expected annual inflation to run close to the "symmetric" 2 percent target over the medium term. The central bank left interest rates unchanged last week.
The Fed hiked rates in March and has signaled at least two more increases for this year.
Stocks on Wall Street were trading higher while U.S. Treasury yields fell. The dollar slipped against a basket of currencies.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
