Treasury prices swung lower Tuesday after a gauge of consumer costs jumped, showing that inflation is beginning to pick up. The consumer price index rose by a seasonally adjusted 0.4% in May, its highest since the fall of 2012. Over the past 12 months, consumer prices rose by 2.1%. The data took some steam out of the bond market as the Federal Reserve begins its policy meeting Tuesday.

The 10-year Treasury note (10_YEAR) yield, which rises as prices fall, was up 3 basis points on the day at 2.631%, according to Tradeweb.

The 5-year note (5_YEAR) yield rose 3.5 basis points to 1.735%, while the 30-year bond (30_YEAR) yield rose 3 basis points to 3.427%. The difference between them, or spread, was near its narrowest since 2009.

The Fed counts price stability as one of its key mandates, and has said it wants to meet its target inflation rate of 2% before normalizing monetary policy. That has tuned investors into indicators of inflation to see when the central bank may raise key interest rates.

“Inflation data is becoming increasingly relevant as a key underlying driver of fixed-income markets, and ultimately other markets as well,” said Eric Green, head of U.S. rates & economic research at TD Securities, in a note to clients.

The Fed is likely to discuss progress on its mandates during its two-day meeting, though strategists said the May inflation data is likely to impact the next meeting more than this one. A policy statement and press conference on Wednesday will be important to the bond market this week as traders gauge when the central bank will first raise its key lending rate.

Traders who bet on the fed funds rate using futures contracts currently forecast the first rate hike occurring in June 2015, though the path higher from there may be slow, according to CME FedWatch. Nonetheless, a survey by Bloomberg suggested 55% of economists believe the Fed will raise rates faster than is currently priced into the market.

Data on Tuesday also showed home starts fell 6.5% in May as builders sought fewer permits. Home starts fell to an annual rate of 1 million units last month from 1.07 million in April.

By Ben Eisen