Inflation rose to 2.8 percent in May, the Bureau of Labor Statistics reported Tuesday in the latest sign that the long-running economic recovery is maturing.
The 2.8 percent annual inflation rate, as measured by the Consumer Price Index, is the highest such mark since early 2012. Higher gas and housing costs helped drive the increase in May.
For wage and salary earners, those higher costs eat into purchasing power and are not a good thing.
From the perspective of the Federal Reserve, however, higher inflation is a good sign in that it is evidence that the economy is performing near its full capacity.
[Related: US unemployment rate ties lowest level in nearly 50 years]
Tuesday’s report will encourage the Fed officials gathering in Washington Tuesday for a two-day monetary policy meeting that they are on the right track in pursuing slow interest rate hikes to tighten monetary policy. The increase in inflation helps assure that they will implement another quarter percentage point interest rate hike this week.
The Fed targets 2 percent inflation, although it uses a different metric than the CPI. For almost all of the past half-decade it has seen inflation fall below that line — a worrying indication that the country may have suffered slower growth and weaker job creation than possible.
The underlying details of Tuesday’s report suggest that inflation is trending up. Stripping out volatile food and energy prices, “core” inflation was 2.2 percent, the fastest since the beginning of last year.
