Statistics from the Labor Department released Tuesday show that the Consumer Price Index increased 0.3 percent in June, primarily driven by an increase in gasoline prices. This came on the heels of the CPI increasing 0.4 percent in May. Thus far, the CPI has increased 2.1 percent on a year-over-year basis from the numbers released for June 2013.
With the U.S. economy enjoying a more sustainable recovery, inflation is rising, and this has been a salve for certain Federal Reserve decision makers, who are in the belief that inflation was not rising as quickly as it should. These recent inflation increases have spurred a number of economists to forecast that inflation may go over the Fed’s own inflation threshold, which is currently at 2 percent, by year-end. The main variables that may cause this could be a rapid increase in employment growth and a parallel increase in wages.
Last week, Federal Reserve Chair Janet L. Yellen cautioned that the central bank may increase short-term interest rates sooner than expected, contingent on the employment market continuing to post better improvements than what Fed movers and shakers forecasted.
With June’s CPI stats in, the greenback rallied strongly, negating losses against the euro, while the U.S. stock market continued to tick upwards. Further, June’s CPI increase met economist predictions, and it was also interesting to note that gasoline prices posted their highest increase in a year, rising 3.3 percent after the prior month’s 0.7 percent rally.