Inflation data cements rate hike talk

Wed Jun 14, 2006

By Tim Ahmann

WASHINGTON (Reuters) - Rising rents pushed up U.S. core prices an unexpectedly steep 0.3 percent for a third straight month in May, according to a government report on Wednesday that cemented expectations of higher interest rates. The Labor Department said the overall consumer price index climbed 0.4 percent last month, pushed up by a 2.4 percent advance in energy costs. While the rise in overall prices matched expectations on Wall Street, economists had expected the core measure, which strips out volatile food and energy costs, to climb just 0.2 percent. Prices for stock futures and U.S. government bonds fell, while the dollar rose as traders viewed the report as boosting chances of further interest rate increases from the Federal Reserve. Interest rate futures markets moved to fully price in a rate rise at the Fed's next meeting on June 28-29. Over the past 12 months, core prices have risen 2.4 percent, the biggest gain since the period ended in February 2005 and up from the 2.3 percent increase seen in the 12 months through April. More troublesome, however, is the rise in recent months.....MORE