Consumer Prices Up More Than Expected

Rising rents pushed up U.S. core prices an unexpectedly steep 0.3 percent for a third straight month, according to a government report on Wednesday that is likely to cement expectations of higher interest rates.

The Labor Department attributed over half of the monthly advance in its core consumer price index, an inflation gauge that strips out volatile food and energy costs, to the rising cost of shelter. Wall Street had expected the core rate to rise just 0.2 percent.

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Overall consumer prices climbed 0.4 percent, as expected, pushed up by a 2.4 percent advance in energy costs.

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 a 2.3 percent increase in the period ended in April.

More troublesome, however, is the rise in recent months. Core consumer prices have advanced at an annual rate of 2.9 percent in the past six months and a steep 3.8 percent in the past three months. Both of those gauges accelerated over the past month.

The burst in core prices over the past three months was the most severe in more than 10 years.

Federal Reserve Chairman Ben Bernanke said last week that the acceleration in core inflation over the past three to six months was "unwelcome" and he pledged the central bank would remain "vigilant" to ensure it was not lasting.

The tough talk on inflation, buttressed by warnings from other central bank officials, helped fuel expectations for a 17th consecutive interest-rate increase at the Fed's next policy-setting session on June 28-29

The department said shelter costs, which strip out utility and furniture prices, rose 0.4 percent last month. That gain reflected a 0.3 percent increase in rental costs and 0.6 percent gain in a home-price index based on rents. It was the largest increase in so-called owners' equivalent rent since August 1990.

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