In December, U.S. consumer prices recorded their largest increase in nearly a year amid strong gains in the cost of rental accommodations and healthcare, boosting the expectations that inflation will gain some momentum in 2018.
The Labor Department said its Consumer Price Index excluding the volatile food and energy components increased 0.3 percent in December also as prices for new motor vehicles, used cars and trucks and motor vehicle insurance rose.
This was the largest improvement in the so-called core CPI since January and followed November’s 0.1 percent increase. Core CPI increased 1.8 percent in the 12 months through December compared to the 1.7 percent increase from the month prior.
This week’s weak import and producer price reports raised concerns regarding the outlook of inflation, although neither report has a strong correlation to CPI data.
Economists are optimistic that a tightening labor market, a rise in commodity prices as well as a weak dollar will drive inflation towards the Federal Reserve’s 2 percent target. The U.S. central bank’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has missed its target for nearly six years. The U.S. central bank as forecasted three rate hikes this year as well as borrowing costs three times.
Lifting last month’s increase in underlying inflation pressures, rents increased 0.4 percent. Owners’ equivalent rent of primary residence gained 0.3 percent after rising 0.2 percent in November. The cost of medical care rose 0.3 percent, with prices for prescription medication increasing 1.0 percent following November’s 0.6 percent increase. Both costs of hospital and doctor visits increased by 0.3 percent.
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Motor vehicle prices increased 0.6 percent in price in December, the largest increase since January, while the cost of motor vehicle insurance increased 0.6 percent.
Lower gasoline prices constrained the increase in the overall CPI to 0.1 percent last month after November’s rise of 0.4 percent, which reduced the year-on-year increase in the CPI to 2.1 percent from 2.2 percent in November. In December, gasoline prices dropped 2.7 percent after rallying 7.3 percent the month before.