The 0.3% m/m increase in core consumer prices in April, which pushed the threemonth annualised rate of core inflation up to a four-year high of 2.6%, leaves the Fed with less scope to delay raising interest rates. Admittedly, the annual core inflation rate remained at 1.8%, but the upward trend in the monthly increases since January is pretty clear now.Forget any thoughts of a deflationary spiral developing, however. The headline inflation rate will rebound into positive territory in May and by early next year, when the sharp declines in gasoline prices drop out of the annual comparison, headline inflation will jump back into line with the core rate. By that time the latter could be well above 2%. “With the employment cost index suggesting that wage growth is accelerating and the CPI indicating that underlying price inflation is rising, the Fed can’t wait forever before beginning to raise interest rates from near-zero. September is still the most likely lift-off date, but July is not out of the question, particularly not if we get another couple of robust rises in core consumer prices in May and June.” notes Capital Economics
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