CPI jumps the most in 10 years in US, boosting case for a rate hike

The overall CPI gauge rose 2.9% in the 12 months to end-July, matching the survey median, the report showed. Core CPI was projected to advance 2.3% on an annual basis.

A 0.3% jump in shelter costs accounted for about 60% of the increase in the overall CPI in July, the labour department said.

Some items that posted big declines in June reversed course in July. Among them were hotel and motel rates, which rose 0.4% after a record decline of 4.1% in June. Airfares jumped 2.7%, the most since July 2013, following a 0.9% drop in June.

Apparel decreased again, dropping 0.3% after falling 0.9% the prior month.

The core CPI reading brought the three-month annualised gain to 2.3%, after rising 1.7% in June.

The Fed’s preferred gauge of inflation — a consumption-based figure that tends to run slightly below the labour department’s CPI — has been at, or above, the central bank’s 2% goal since March, though the related core index was still shy of the target. Fed officials see core inflation as a more reliable gauge of underlying price pressures.

Policy makers are widely projected to lift borrowing costs when they meet in September, with many investors expecting an additional hike before the end of 2018. Inflation has made progress, and the unemployment rate, at 3.9% in July, signalled that the Fed was near its maximum-employment goal.

Trade may become a source of price pressures. In picking Chinese goods to target for tariffs, the Trump administration has tried to avoid directly taxing consumer goods. But that’s getting harder to do as trade tension escalates. A list of Chinese products due to be hit with tariffs in September includes consumer items such as digital cameras, selfie sticks and electric scooters.

With Chris Middleton and Andrew Mayeda

Bloomberg