TORONTO • The underlying pace of US inflation unexpectedly accelerated in December amid higher housing costs, reinforcing the outlook for the Federal Reserve to raise interest rates several times this year.
Excluding food and energy, the core consumer price index (CPI) rose 1.8 per cent from a year earlier after a 1.7 per cent advance, including a 0.3 per cent monthly gain that topped analyst projections and was the most in almost a year.
Including all items, the broader CPI showed a smaller gain in December in line with estimates, as energy prices declined, a Labour Department report showed yesterday.
Investors' already-firm expectations rose for a Fed interest-rate increase in March, as the data could help calm an increasingly heated debate among central bank officials over why inflation has stayed relatively placid despite solid economic growth and the lowest jobless rate since 2000. Fed policymakers have pencilled in three rate hikes in 2018 following three last year.
A Commerce Department report yesterday showed US retail sales rose in December and November's gain was revised up, indicating a robust holiday-shopping season.
"The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors," said chief economist Lewis Alexander at Nomura Securities International, who had projected a 0.3 per cent monthly gain in core prices.
"It's in line with an economy operating at full employment."
He said the biggest positive was the revision to the November retail data, suggesting fourth-quarter economic growth may have been stronger than previously thought.
The 0.3 per cent monthly increase in the core CPI topped the 0.2 per cent median estimate of economists polled by Bloomberg. Shelter costs rose 0.4 per cent, the most since August, including a 0.4 per cent increase in rents and 0.3 per cent in owners' equivalent rent, one of the categories designed to track rental prices.
The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.
At the same time, the central bank's preferred gauge of inflation - a separate figure based on consumer purchases and issued by the Commerce Department - has mostly missed its 2 per cent goal in the past five years.
BLOOMBERG
