US consumer price gains slow; underlying inflation supported

[WASHINGTON] US consumer prices moderated in May, but sustained increases in housing and healthcare costs kept underlying inflation supported, which could allow the Federal Reserve to raise interest rates this year.

The Labour Department said on Thursday its Consumer Price Index increased 0.2 per cent last month after rising 0.4 per cent in April. In the 12 months through May, the CPI advanced 1.0 per cent after rising 1.1 per cent in April.

Economists had forecast the CPI gaining 0.3 per cent last month and advancing 1.1 per cent from a year ago.

The so-called core CPI, which strips out food and energy costs, rose 0.2 per cent after a similar gain in April. That took the year-on-year core CPI rise to 2.2 per cent from 2.1 per cent in April.

The Fed has a 2 per cent inflation target and tracks an inflation measure which is currently at 1.6 per cent. The US central bank on Wednesday kept interest rates unchanged and said it expected inflation to remain below its target through 2017.

While the Fed signalled it still planned two rate hikes this year, there was less conviction, with six officials expecting only a single increase, up from one in March.

The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade.

Last month, gasoline prices rose 2.3 per cent after surging 8.1 per cent in April. Food prices fell 0.2 per cent, reversing the prior month's increase.

Within the core CPI basket, housing and medical costs maintained their upward trend. Owners' equivalent rent of primary residence rose 0.3 per cent after rising by the same margin in April.

Medical care costs increased 0.3 per cent after a similar gain in April. The cost of hospital services shot up 0.7 per cent after rising 0.3 per cent the prior month. Doctor visit costs rose 1.0 per cent, but the cost of prescription medicine fell 0.4 per cent after increasing 0.7 per cent in April.

Apparel prices rose 0.8 per cent. The cost of used cars and trucks dropped 1.3 per cent, the biggest fall since March 2009. Prices for new motor vehicles fell 0.1 per cent.

REUTERS