Consumer Prices Rise on Higher Gasoline, Rents

U.S. consumer prices rose in December as households paid more for gasoline and rental accommodation, leading to the largest year-on-year increase in 2-1/2 years, a sign that inflation pressures could be building.

The Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent last month after gaining 0.2 percent in November. In the 12 months through October, the CPI increased 2.1 percent, the biggest year-on-year gain since June 2014. The CPI rose 1.7 percent in the year to November.

The increases were in line with economists' expectations.

The CPI rose 2.1 percent in 2016, up from 0.7 percent in 2015.

Rising inflation comes against the backdrop of a strengthening economy and tightening labor market, which raises the specter of a faster pace of interest rate increases from the Federal Reserve than currently anticipated.

The U.S. central bank has forecast three rate hikes this year. It raised its benchmark overnight interest rate by 25 basis points to a range of 0.50 percent to 0.75 percent last month.

Price pressures are likely to remain on an upward trend amid expectations of fiscal stimulus from the incoming Trump administration. Republican businessman-turned-politician Donald Trump, who will be sworn in as U.S. president on Friday, has pledged to increase spending on infrastructure and cut taxes.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after the same increase in November. As a result, the core CPI increased 2.2 percent in the 12 months through December, from 2.1 percent in November.

The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.6 percent.

Last month, gasoline prices surged 3.0 percent after climbing 2.7 percent in November. Food prices were unchanged for a sixth straight month. The cost of food consumed at home dropped for an eighth consecutive month.

Within the core CPI basket, housing continued its upward march in December. Rents increased 0.3 percent last month, with owners' equivalent rent of primary residence also gaining 0.3 percent after the same rise in November.

The cost of medical care rose 0.2 percent, with the prices for doctor visits unchanged. Prices for prescription medicine increased 0.2 percent. The cost of hospital services rose 0.3 percent.

There were increases in the prices of a range of other goods and services last month including the cost of motor vehicle insurance, which increased 0.8 percent.

(Reporting by Lucia Mutikani; Editing by Paul Simao)