With a steep drop in gas prices offset by an increase in the cost of shelter, the Labor Department released a report on Thursday showing an unexpected uptick in U.S. consumer prices in the month of June.
The Labor Department said its consumer price index inched up by 0.1 percent in June, matching the slight increase seen in May. Economists had expected consumer prices to come in unchanged.
The unexpected uptick in consumer prices came even though energy prices tumbled by 2.3 percent in June after falling by 0.6 percent in May. Gas prices plunged by 3.6 percent.
Excluding food and energy prices, core consumer prices rose by 0.3 percent in June after inching up by 0.1 percent for four consecutive months. Core prices had been expected to edge up by 0.2 percent.
Shelter costs led core prices higher, rising by 0.3 percent, while prices for apparel, used cars and trucks, and household furnishings and operations also showed notable increases.
Despite the unexpected monthly increase, the Labor Department said the annual rate of consumer price growth slowed to 1.6 percent in June from 1.8 percent in May.
Meanwhile, the report said the annual rate of core consumer price growth crept up to 2.1 percent in June from 2.0 percent in the previous month.
Andrew Hunter, Senior U.S. Economist at Capital Economics, does not expect the stronger than expected core consumer price growth to prevent the Federal Reserve from cutting interest rates later this month and expressed doubt the strength will be sustained.
"Higher tariffs could yet put some further upward pressure on core goods prices over the coming months but, with growth in unit labor costs slowing, we still think core CPI inflation will remain muted," Hunter said.
He added, "With the latest surveys pointing to a sharp slowdown in activity growth, we expect the Fed to follow a 25bp rate cut this month with further cuts in December and March next year."
The Labor Department is scheduled to release a separate report on producer price inflation in the month of June on Friday.
Producer prices are expected to come in unchanged in June after inching up by 0.1 percent, while core producer prices are expected to rise by another 0.2 percent.