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Rising gas prices push annual inflation to highest level in 2015, raises odds of Fed rate hike

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WASHINGTON — Rising gasoline prices pushed inflation up modestly in June, leaving overall consumer prices higher than they were a year earlier for the first time since December.

Economists say the tick up in consumer prices makes it more likely the Federal Reserve will end a policy of keeping short-term interest rates near zero for more than six years. "Rebounding inflation combined with solid employment growth will likely lead the Fed to raise rates in September," said Gregory Daco, head of U.S. macroeconomics at Oxford Economics.

PHOTO: In this photo taken June 12, 2015, shopper Julia Esquivel picks onions at a local grocery store in the Little Havana area of Miami. The Labor Department reports on consumer prices for June on Friday, July 17, 2015. (AP Photo/Alan Diaz)
In this photo taken June 12, 2015, shopper Julia Esquivel picks onions at a local grocery store in the Little Havana area of Miami. The Labor Department reports on consumer prices for June on Friday, July 17, 2015. (AP Photo/Alan Diaz)

The Labor Department said Friday that its consumer price index rose 0.3 percent last month. Prices at the pump rose 3.4 percent in June on top of a 10.4 percent increase in May. An outbreak of avian flu drove egg prices up 18.3 percent in June, but overall food prices rose just 0.3 percent. Excluding volatile food and energy prices, so-called core inflation rose 0.2 percent last month.

The June numbers were about what economists had expected.

Overall consumer prices rose just 0.1 percent the past year; core prices are up 1.8 percent. Gasoline prices are down 23.3 percent over the last year; they hit bottom in January, then rebounded.

Inflation is running below the Fed's 2 percent target. But Fed chair Janet Yellen told Congress this week that the central bank is likely to lift short-term interest rates later this year. The Fed has kept the rate it controls near zero for more than six years, first to calm financial markets after the panic of 2008 and then to bolster a weak recovery from the Great Recession of 2007-2009. But the U.S. economy has shown steady improvement. Employers are adding a healthy 208,000 jobs a month so far this year, and the unemployment rate has tumbled to a seven-year low 5.3 percent.

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