Summer Rate Rise Speculation Heats Up In U.S.

By Agence France-Presse Speculation of a swift rise in near rock-bottom U.S. interest rates heated up May 14 as fresh data showed underlying consumer prices creeping higher and industry revving up. Overall consumer prices rose a modest 0.2% in April from the previous month but core prices, stripping out energy and food, rose a steeper-than-expected 0.3%. More worrying, core prices were up 1.8% in April when compared to last year, following year-over-year increases of 1.2% in February and 1.6% in March. "What the CPI [consumer price index] data this morning suggest is that the upturn in underlying inflation can no longer be ignored, although it is likely that the last few months have overstated the extent of the problem," said Bank One economist Anthony Karydakis. "With core inflation running at a 3.3% annual rate in the last three months, the pressure on the Fed to show responsiveness by tightening in June is growing steadily. We expect a 25 basis point move at the June meeting." On May 4, Federal Reserve policymakers left the federal funds rate, which banks charge each other overnight, at a 1958 low of 1% but they said rates can eventually rise at a "measured" pace. The next meeting of the policymaking Federal Open Market Committee is June 29-30. Copyright Agence France-Presse, 2004