Washington – U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to raise interest rates to subdue inflation, the Commerce Department reported Tuesday.
The data from June showed a healthy rise in household incomes, and another tepid month for consumer spending, which accounts for roughly two-thirds of the U.S. economy.
The Fed’s favored inflation gauge, the core personal consumption expenditure price index, increased 0.2 percent for the third straight month in June. Core inflation, excluding food and energy, has risen 2.4 percent in the past 12 months, matching the largest year-over-year gain since the spring of 1995.
“Inflation is rising faster than it was before,” said Stephen Stanley, chief economist for RBS Greenwich Capital. Core inflation will likely accelerate to 2.5 percent in July and to 2.6 percent in August, he said.
The 2.4 percent year-over-year gain in core inflation exceeded the 2.3 percent pace most economists had been expecting.
It was the biggest yearly rise in core inflation in 11 years, matched by an equal 2.4 percent gain in September 2002, when the inflation rate was briefly boosted by a statistical anomaly related to insurance payments stemming from the terror attacks on Sept. 11, 2001.
“It was an echo effect from 9/11,” said Stanley, who noted that the year-over-year gain in September 2002 was a one-month phenomenon, not a sustained rise as in the past several months.
Consumer prices including food and energy also rose 0.2 percent in June, and are up 3.5 percent in the past year.
Meanwhile, personal incomes rose 0.6 percent in June, outpacing the 0.4 percent increase in consumer spending.
The personal savings rate rose to negative 1.5 percent from negative 1.6 percent, the 15th consecutive month of negative savings.
Consumers can have negative savings by spending previous savings, or by borrowing or selling assets to support their consumption.
After adjusting for inflation, real consumer spending rose 0.2 percent in June, the fourth straight month of tepid spending.
Factoring out taxes and inflation, real take-home pay rose 0.4 percent, the biggest increase in disposable income since December. Real disposable incomes are up 1.7 percent in the past year.
Real per-capita disposable incomes rose 0.3 percent in June and are up 0.8 percent in the past year.
The gains in nominal monthly incomes, spending and inflation were exactly as expected by Wall Street economists surveyed by MarketWatch.
The inflation figures continue to trouble Fed policymakers, who have said core prices are rising faster than they’d like.
The central bank has raised interest rates 17 times in the past two years, but much of the impact of those rate increases has yet to be felt, Fed officials have said.
Markets are expecting the Fed to stand pat in August to reassess monetary policy.
Two Fed officials said Monday that the decision about whether to raise rates again would be a close call, one that would depend in part on incoming data on growth and inflation.
