A gauge of U.S. consumer prices jumped by the most in a decade in July, eating into wage gains that have barely budged in the past four months and strengthening the case for the Federal Reserve to keep raising interest rates gradually.
The core measure of the consumer price index, which excludes food and fuel, rose 2.4 percent from a year earlier, the biggest advance since September 2008, a Labor Department report showed Friday. From the previous month, both the main consumer price index and core rate rose 0.2 percent -- matching expectations.
While housing costs gave a big boost to the results, steady consumer demand is underpinning inflation just as a trade war threatens to lift costs on a range of goods. Sustained progress toward the Fed's goal keeps the central bank on track for one or two more rate increases this year even as price pressures are a blow to already weak increases in paychecks.
A separate Labor Department report on Friday showed inflation-adjusted wages were unchanged in July from the previous month and dropped 0.2 percent from a year earlier. The lack of much real wage growth has become a contentious issue for Republicans and Democrats heading into midterm congressional elections in November.
"For Americans to benefit more from the expansion, real wage growth needs to be positive as it usually is in this phase of an expansion," said Robert Frick, a corporate economist with Navy Federal Credit Union
The overall consumer price index rose 2.9 percent in the 12 months through July, matching the survey median, the report showed. The core index was projected to advance 2.3 percent on an annual basis.
A 0.3 percent jump in housing costs accounted for about 60 percent of the increase in the overall price index last month, the Labor 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 percent after a record decline of 4.1 percent in June. Airfares jumped 2.7 percent, the most since July 2013, after a 0.9 percent drop in June.
Apparel decreased again, dropping 0.3 percent after falling 0.9 percent the previous month.
The core reading brought the three-month annualized gain to 2.3 percent, after rising 1.7 percent in June.
The Fed's preferred gauge of inflation -- a consumption-based figure that tends to run slightly below the Labor Department's price index -- has been at or above the central bank's 2 percent 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.
Policymakers are widely projected to lift borrowing costs when they meet in September, with many investors expecting an additional increase before the end of the year. Inflation has made progress, and the unemployment rate, at 3.9 percent in July, signals the Fed is 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 tensions escalate. A list of Chinese products set to be hit with tariffs next month includes consumer items such as digital cameras, selfie sticks and electric scooters.
The Labor Department report also said energy prices fell 0.5 percent from previous month; food costs rose 0.1 percent; costs for new vehicles gained 0.3 percent; and used-vehicle prices rose 1.3 percent.
Rising gasoline costs have complicated the inflation picture. Gas costs have surged 25.4 percent in the past year, but they tumbled 0.6 percent in July, which could mean that prices at the pump may be stabilizing.
Indexes for medical care and apparel costs declined, while measures of airline fares, household furnishings and recreation all increased, the report showed.
The consumer price index is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.
Information for this article was contributed by Chris Middleton and Andrew Mayeda of Bloomberg News and by Josh Boak of The Associated Press.
A Section on 08/11/2018