WASHINGTON - Core consumer prices outside
of food and energy posted the biggest increase in April in more
than a year, suggesting that an improving U.S. economy is
finally starting to lift prices. That could prompt the Federal
Reserve to start raising interest rates later this year.
Overall consumer prices edged up 0.1 percent for
the third straight climb, the Labor Department said Friday.
Overall gains were held back by a 1.3 percent drop in energy
But excluding food and energy, core inflation
rose 0.3 percent in April, marking the biggest one-month
increase since January 2013. That means core inflation has risen
at an annual rate of 2.6 percent over the past three months -
the fastest pace in four years.
Ashcroft, chief U.S. economist at Capital Economics, said while
overall inflation still remains very low, the trend in core
prices is likely to spark concerns at the central bank. The Fed
has kept interest rates at ultra-low levels for the past six
years to help the economy recover from a deep recession.
‘‘The Fed can’t wait forever before beginning to
raise interest rates,’’ Ashcroft said, agreeing with many other
economists that the Fed will likely start raising rates in
The increase in the core rate was driven by a 0.7
percent surge in medical costs, reflecting higher hospital
Jennifer Lee, senior economist at BMO Capital
Markets, said that both overall inflation and core prices have
accelerated modestly over the past six months.
‘‘This suggests that although inflation remains
very tame, economic growth, sporadic as it is, ... is helping
prices stabilize instead of fall,’’ Lee said in a note to
Overall inflation still remains very low.
Consumer prices are down 0.2 percent from 12 months ago,
reflecting a nearly 20 percent drop in energy prices. And even
with the April increase, core prices are up a moderate 1.8
percent from a year ago.
But analysts noted price increases in a number of
areas in April. In addition to medical costs, the price of used
cars, household furnishings and rent payments all climbed last
‘While inflation is not a major concern, the
pattern of prices is changing,’’ said Joel Naroff, chief
economist at Naroff Economic Advisors. ‘‘It used to be hard to
find any category where costs were going up but now the opposite
is true. Most categories are posting increases.’’
In April, gasoline prices on a seasonally
adjusted basis fell 1.7 percent after having posted increases in
the past two months. The nationwide average for gasoline is
currently $2.73, according to the AAA Daily Fuel Gauge. While
that is up 27 cents from a month ago, it is still 91 cents below
the level a year ago.
Inflation by a price gauge preferred by the
Federal Reserve has been running below the Fed’s 2 percent
target for nearly three years. The Fed aims to keep prices
rising at this level, which it views as achieving its goal of
price stability. Anything below that target raises the danger of
deflation, when prices fall so sharply that they can disrupt
The Fed has kept interest rates at near zero in
an effort to stimulate stronger economic growth and re-establish
the millions of jobs lost during the 2007-2009 recession. Fed
officials have said they want to be ‘‘reasonably confident’’
that inflation is headed toward their 2 percent target, which
would signal a stronger economy, before they start raising
With strong employment gains over the past year
and economic growth expected to rebound after a winter slowdown,
many economists believe the Fed will start lifting rates later
Minutes of their discussions at their last
meeting in April indicated that it is unlikely the first rate
hike will occur at the Fed’s June meeting. Many economists are
now predicting the Fed will wait until at least September.