By Ben Leubsdorf
U.S. consumer inflation continued to stiffen last month but
largely decelerated outside a jump in gasoline prices, and food
costs in particular slowed after surging in recent months.
The consumer-price index for June, released Tuesday by the Labor
Department, offered the latest evidence that U.S. inflation is on
the rise after several years of sluggish price gains. There's
little sign, though, of runaway prices that would force the Federal
Reserve to quickly raise interest rates to check inflation.
Critics have accused the Fed of "being behind the curve on
inflation," J.P. Morgan Chase chief U.S. economist Michael Feroli
said. "One would think this would mollify that to some extent."
The index rose a seasonally adjusted 0.3% last month. Excluding
the often-volatile categories of food and energy, prices rose 0.1%
from May.
The year-over-year increase in all prices was 2.1% last month,
and prices excluding food and energy slipped to a 1.9% annual gain
in June from 2% in May.
A broad rise in prices during May took the annual inflation rate
to 2.1%, its highest level since October 2012. But a 3.3% monthly
spike in gasoline prices accounted for most of the June increase as
motor-vehicle prices fell, prices for medical services were flat
and shelter costs rose 0.2%.
Food prices ticked up just 0.1% in June from the prior month
after surging 0.5% in May and 0.4% in each of the prior three
months. Drought and livestock and crop disease have caused prices
for beef, pork, citrus fruits and other groceries to spike this
year, driving the annual rise in food prices from 1.1% in January
to 2.5% in May.
The annual rise in food prices slipped to 2.3% in June. Those
prices can be volatile from month to month, but U.S. Department of
Agriculture economist Annemarie Kuhns cited several forces now
addressing supply bottlenecks, including a rise in beef and citrus
imports.
Consumers also might substitute cheaper items for more-expensive
ones. Chipotle Mexican Grill Inc. this year raised steak prices by
about 9% and chicken prices by about 5%. "We have, in fact, seen
some customers shift from steak to chicken," Chief Financial
Officer Jack Hartung told analysts Monday.
The Fed has set a 2% annual inflation target. But it prefers to
use a different gauge, the Commerce Department's personal
consumption expenditures price index, which typically runs below
the CPI's level. In May, the PCE price index was up 1.8% from a
year earlier and rose 1.5% excluding food and energy.
The Fed has kept short-term interest rates near zero since
December 2008 to bolster the U.S. economy through a financial
crisis, a recession and five years of sluggish recovery. Most
policy makers expect to begin raising rates sometime next year as
inflation gradually gains traction and the economy continues to
heal.
Some Fed officials have said they favor tightening policy
quickly if necessary. But Chairwoman Janet Yellen has indicated she
prefers to remain patient, telling lawmakers last week that "a high
degree of monetary policy accommodation remains appropriate."
The latest CPI report could take some pressure off Fed officials
when they assemble next week for a policy meeting. The underlying
trend appears to be a general firming in inflation, if a little
faster than the Fed had expected, said Michael Gapen, senior U.S.
economist at Barclays Capital.
"This is what they want," he said. "It wouldn't be so much as to
make them worried, but it would make them content that their policy
is working."
Sarah Portlock contributed to this article.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com