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Firmer Underlying Inflation Keeps Fed on Rate Hike Path

The building of the Federal Reserve Bank in downtown Manhattan in New York (AP Photo)
The building of the Federal Reserve Bank in downtown Manhattan in New York (AP Photo)

 

(Reuters) – Rising shelter and medical care costs boosted underlying U.S. inflation pressures in April, a welcome sign for the Federal Reserve as it contemplates raising interest rates this year.

The Labor Department said on Friday its Consumer Price Index, excluding food and energy, increased 0.3 percent last month. It was the largest rise in the so-called core CPI since January 2013 and followed a 0.2 percent gain in March.

Economists who had expected core inflation to increase 0.2 percent last month said the increase, which also reflected gains in the prices of household furnishings and new and used motor vehicles, should keep the U.S. central bank on track to hike rates before the end of 2015.

“It will give the Fed greater confidence that inflation will indeed make it to its target in the next couple of years, it increases the odds of faster Fed action,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

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