Image source: Virginia Johnson / Unsplash

WASHINGTON (Reuters) – U.S. consumer prices increased by the most in nearly eight years in June as businesses reopened, but the underlying trend suggested inflation would remain muted and allow the Federal Reserve to keep injecting money into the ailing economy.

The Labor Department said on Tuesday its consumer price index increased 0.6% last month, the biggest gain since August 2012, after easing 0.1% in May. The increase, which ended three straight months of declines, was driven by rises in the prices of gasoline and food.

In the 12 months through June, the CPI climbed 0.6% after gaining 0.1% in May, which was the smallest year-on-year rise since September 2015.

Economists polled by Reuters had forecast the CPI increasing 0.5% in June and advancing 0.6% year-on-year.

Businesses have reopened after shuttering in mid-March to slow the spread of COVID-19. But new cases of the respiratory illness have surged in large parts of the country, prompting some states to dial back or pause reopenings.

The economy slipped into recession in February.

The Fed is pumping money into the economy through extraordinary measures, including large-scale asset purchases and funneling loans to firms. Separately, the government has provided nearly $3 trillion in fiscal stimulus, contributing to a record monthly budget deficit in June.

There have been fears that the unprecedented stimulus could stoke inflation. But with a record 33 million people on unemployment benefits, economists expect inflation is likely to remain benign.

Excluding the volatile food and energy components, the CPI rose 0.2% in June after slipping 0.1% in May. Increases in the costs of apparel and healthcare were offset by a moderation in rental inflation.

The so-called core CPI had dropped for three consecutive months for the first time since the series started in 1957. In the 12 months through June, the core CPI increased 1.2%, matching May’s gain.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target. The core PCE price index increased 1.0% on a year-on-year basis in May, the smallest advance since December 2010. June’s core PCE price index data will be released at the end of this month.

Reporting by Lucia Mutikani; Editing by Andrew Heavens and Andrea Ricci.

_____

Source: Reuters