Inflation held steady in the year through June, the Bureau of Labor Statistics reported Friday, but rising rents and medical prices played a major role in pushing core inflation higher.
During the month, the Consumer Price Index rose 0.2 percent, slightly less than the 0.3 percent expected by private-sector economists.
Core inflation, however — which strips out the volatile categories of food and energy, rose 0.2 percent in the month, right in line with expectations. That increase was enough to push core inflation to 2.3 percent for the year, matching the highest levels of the economic recovery. Policymakers pay close attention to core inflation because it is more suggestive of future inflation than the headline number is.
Rising inflation is one of the key indicators Federal Reserve officials are watching for in setting monetary policy. The Fed targets 2 percent inflation, a mark that hasn’t been hit in two years. Signs that inflation is in fact rising toward 2 percent, however, would push Fed officials toward tightening the money supply by raising interest rates sooner.
Friday’s numbers indicated that one of the major factors tamping down inflation in recent years, namely falling energy prices, has abated. Energy prices rose for the fourth month in a row in June, even though energy prices, including gasoline prices, are still down by double digits on the year.
From the perspective of Fed policymakers, collapsing energy prices over the past two years are a reflection of international developments, especially the slowdown in demand for commodities in China and elsewhere. With the U.S. domestic economy still growing and creating jobs, however, Fed chair Janet Yellen has said that inflation would be expected to pick up once energy prices stabilize.
Along with energy price gains, rent and medical prices are up around 3.5 percent on the year, offsetting falling food prices.
