WASHINGTON (Reuters) - U.S. consumer prices recorded their largest increase in more than a year in May as costs for a range of goods and services rose, pointing to a steady firming of inflation pressures.
The Labor Department said on Tuesday its Consumer Price Index increased 0.4 percent last month, with food prices posting their biggest rise since August 2011.
The uptick in price pressures should comfort some Federal Reserve officials who had worried inflation was running too low. Still, a separate inflation gauge watched most closely by the Fed continues to run below the U.S. central bank’s 2 percent target.
Fed officials start a two-day policy meeting on Tuesday. The Fed is expected to further trim its monthly bond buying program, but is not seen raising interest rates until mid-2015.
A separate report from the Commerce Department showed housing starts and permits fell in May, a sign that the housing recovery could remain in slow mode. Fed Chair Janet Yellen has warned that a protracted housing slowdown could undermine the economy.
Groundbreaking for homes fell 6.5 percent to a seasonally adjusted annual pace of 1 million units in May. Permits declined 6.4 percent to a 991,000-unit pace, pulling back from the 1.06 million units touched in April.
U.S. stock index futures turned negative on the data, while prices for U.S. Treasury debt fell. The dollar hit session highs versus the yen and the euro.
“Medical care costs will help push inflation to 2 to 2-1/2 percent later this year. But the Fed could tolerate that,” said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis.
Last month’s increase in consumer prices was the largest since February 2013 and above economists’ expectations for a 0.2 percent gain. It followed a 0.3 percent advance in April.
In the 12 months through May, consumer prices increased 2.1 percent, the biggest rise since October 2012. That came on top of a 2.0 percent rise in April and was above economists’ expectations for a year-on-year increase of 2.0 percent.
It was the first back-to-back 2 percent rise in the year-on-year CPI since early 2012.
Stripping out food and energy prices, the so-called core CPI rose 0.3 percent, the largest increase since August 2011. It had risen 0.2 percent in April.
In the 12 months through May, the core CPI increased 2.0 percent. That was the biggest gain since February of last year and followed a 1.8 percent rise in April.
Economists had forecast the core CPI rising 0.2 percent from April and 1.9 percent from a year-ago.
Food prices increased 0.5 percent in May, rising for a fifth consecutive month. Prices for meat, dairy, fruit and vegetables rose. Poultry and fish prices also increased as did the cost of eggs.
Gasoline prices increased 0.7 percent. Prices for electricity also rose after declining in the prior month.
The core CPI was lifted by a 0.3 percent rise in rent. There were also increases in medical care costs, apparel, new cars prices and airline fares.
Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao