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Core U.S. consumer prices rose in April by most in two years

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(Bloomberg) — The cost of living excluding food and fuel rose at a faster pace than expected in April, indicating inflation is inching toward the Federal Reserve’s goal.

The core consumer-price index climbed 0.3 percent, the biggest gain since January 2013, reflecting broad-based increases, a Labor Department report showed today in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.2 percent advance. Prices including food and fuel rose 0.1 percent.

Costs will probably continue to increase as fuel expenses stabilize and a lack of apartments pushes up rents, one of the biggest categories. Further firming in price pressures should help Federal Reserve policy makers gain confidence inflation will move toward their 2 percent goal as they consider their first interest-rate rise since 2006.

“Potentially, things are building in terms of inflation faster than we thought,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. “If core inflation really is firming, then all of a sudden that starts putting pressure on the Fed.”

Stock-index futures and Treasury securities dropped after the report on concern a pickup in inflation would cause Fed policy makers to raise interest rates later this year. The contract on the Standard & Poor’s 500 Index maturing in June declined 0.2 percent to 2,124.6 at 9:01 a.m. in New York. The yield on the benchmark Treasury 10-year note, which moves inversely to prices, climbed to 2.22 percent from 2.19 percent late on Thursday.

Survey results

Estimates for core consumer prices in the Bloomberg survey ranged from little changed to a 0.3 percent advance. At a year- over-year rate, they rose 1.8 percent in April, the same as in the prior month.

Consumer prices including all categories were projected to rise 0.1 percent, with estimates ranging from a 0.4 percent drop to a 0.4 percent advance. The CPI declined 0.2 percent in the 12 months ended in April, the biggest year-to-year drop since October 2009. That mainly reflected the plunge in energy costs that has recently abated.

Energy costs decreased 1.3 percent in April after rising 1.1 percent a month earlier. Food costs were little changed.

Real wages

Restrained food and energy costs are helping prop up Americans’ spending power. Hourly wages adjusted for inflation increased 2.3 percent over the past 12 months on average, compared with a 2.1 percent gain in the year ended March, according to a separate report from the Labor Departmentissued Friday.

The advance in the core index last month was bolstered by prices for rents, used cars and trucks, and medical care, which showed the biggest increase since January 2007.

Inflation will need to keep rising in order for Fed officials to be “reasonably confident” that progress on their price stability mandate is sufficient to allow for an increase in the benchmark interest rate. The officials’ preferred measure of price growth, the personal consumption expenditures gauge, rose 0.3 percent in the year ended March and hasn’t met the Fed’s goal since April 2012.

Many of the participants in the central bankers’ April 28-29 meeting “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied,” according to minutes of the gathering released Wednesday.

Fed forecast

The Fed officials will announce the start of interest-rate increases at their September meeting, according to 42 of 54 economists surveyed by Bloomberg May 8-13.

A rout in global oil markets in the second half of 2014 still might be keeping airfares from rising at a faster pace as airlines enjoy cheaper fuel costs. American Airlines Group Inc. is among carriers ready to issue discounted tickets if the competition demands it.

“To the extent capacity comes in and results in lower prices, we’ll match those prices because we have to,” Chief Executive Officer Doug Parker said Tuesday in an interview at Bloomberg’s New York headquarters. “All we can do is run our own airline and compete against those that chose to grow and we will compete aggressively.”

The CPI 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 prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, unexpectedly fell 0.4 percent in April from the prior month, depressed by declining profit margins at wholesalers and retailers, data showed last week. A separate report indicated the cost of imported goods fell 0.3 percent in April, marking 10 consecutive months of negative readings.

–With assistance from Chris Middleton in Washington.