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May inflation at six-year high, eats away at wage increases
US inflation accelerated in May to the fastest pace in more than six years, reinforcing the Federal Reserve's outlook for gradual interest rate hikes while eroding wage gains that remain tepid despite an 18-year low in unemployment.
The consumer price index (CPI) rose 0.2 per cent from the previous month and 2.8 per cent from a year earlier, matching estimates, a Labor Department report showed on Tuesday.
The annual gain was the biggest since February 2012. Excluding food and energy, the core gauge was up 0.2 per cent from the prior month and 2.2 per cent from May 2017, also matching the median estimates of economists.
The pick-up 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 policymakers' thinking on the pace of increases for the second half and in 2019.
The Fed's preferred gauge of inflation - a separate consumption-based figure from the Commerce Department - came in at the central bank's 2 per cent goal during March and April, and the figure tends to run slightly below the Labor Department's 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.
A separate Labor 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 per cent annual gain from 2.6 per cent in April.
For production and non-supervisory workers, real average hourly earnings fell 0.1 per cent from a year earlier.
Seasonally adjusted petrol prices rose 1.7 per cent in May from the previous month, after a 3 per cent gain in April.
Investors see the Fed as on track to raise interest rates at its two-day meeting that starts later on Tuesday in Washington, while policymakers will issue updated forecasts showing whether they expect one or two hikes in the second half. BLOOMBERG