According to government data released on Tuesday, rising gas prices, in conjunction with the cost of goods rising at the fastest pace in three years, helped increase inflation last month.
In April, the consumer-price index, a closely watched gauge of inflation, is reported by the Labor Department to be 0.4%, compared with the previous month, beating analysts’ expectations.
The increase was largely due to a jump in energy prices that included an 8.1% spike in gasoline. Aside from that, Food prices were up 0.2%, and housing and medical services rose 0.3%.
However, excluding the volatile food and energy sectors, prices rose a more modest 0.2% in April, a measurement that economists often refer to as core inflation. Compared to last year, that figure has risen 2.1%.
On the other hand, the data released early this week indicates that, outside of the gains in energy prices, the continued firming in underlying core domestic prices suggests that the Fed’s confidence in the inflation outlook over the medium term might be well placed.
Although it is obvious that the Fed, given that the unemployment rate went down to 5%, half of its peak after the recession, puts more attention on fostering maximum employment and has managed to maintain the economy running below its target of 2% inflation for years.
In addition, there were other encouraging signs released Wednesday that the recovery remains on track. Housing construction picked up in April, with the Commerce Department reporting a 6.6% increase in activity. In addition, industrial production rose 0.7%, more than analysts had forecast, amid strong improvements in utilities.
“That confirms the trends we have seen since the start of the year: Inflation has firmed but is not flaring,” said Diane Swonk, head of DS Economics.