America’s inflation rate is heading towards 3%, figures showed today.
The Consumer Price [correct Price] Index in the year to June rose by 2.9%, a 0.1 percentage point rise in the rate for the year to May, the largest 12-monthly increase since the period to February 2012.
But the inflation measure, targeted by the US authorities when making interest-rate decisions, rose by a more modest 2.3%.
Eating out gets more expensive
The US Bureau of Labor Statistics said, of the all-items index, that food prices increased by 0.2 percentage points in June compared with May and by 1.4% over the previous 12 months, while energy costs declined by 0.3 percentage points in June compared with May and rose by 12% over the previous 12 months.
The price of new vehicles declined by 0.5% in the year to June, that of used vehicles fell by 0.7% and clothing costs rose by 0.6%. The category “medical care commodities” saw a 12-monthly rise of 2.4%.
America’s central bank, the Federal Reserve, has to meet two targets. One is to keep the level of so-called core inflation at close to 2%. Core inflation excludes food and energy prices, because they tend to be volatile, and it is this figure that rose by 2.3% in the 12 months to June.
The other target is “maximum employment”. Unlike the inflation target, this has never officially been specified but is thought to comprise a jobless rate of no more than 4.5%-5% of the workforce.
Federal Reserve may act
In the year to June, the CPI rose 2.8%, and core inflation was 2.2%, slightly above the Fed’s target, so the trend is clearly upwards and this may prompt a rise in borrowing costs. The unemployment rate stood at 4% in June, a 0.2 percentage point increase on May but still overshooting the Fed’s target.
In the wake of the economic crisis, the Fed slashed rates to an emergency range of 0%-0.25% in December 2008. This range remained in force until December 2015, when the strength of the US recovery set in train a series of rate rises.
At its meeting in May, the Fed voted to maintain the key federal funds rate in a range of 1.5% to 1.75%, the range resulting from the most recent increase. In a statement after the meeting, it said: “Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low“.
It added: “On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%.”