The consumer price inflation gauge rose in January
The US Federal Reserve’s favorite indicator of inflation ticked higher in January, a sign that price pressures in the US economy are lingering and could prompt the Fed to hike interest rates well into this year.
The Commerce Department’s Friday report showed consumer prices rose 0.6% from December to January, a sharp rise from a 0.2% rise from November to December. Year-on-year, prices rose 5.4% versus a 5.3% annual increase in December.
The report also showed that consumer spending rose 1.8% last month since December after falling the previous month.
All in all, Friday’s data provided the latest sign that high inflation remains gripping the economy, despite the Fed’s strenuous efforts to contain it. Last week the government released a separate measure of inflation – the consumer price index – which showed prices rose 0.5% from December to January, much more than the previous month’s 0.1% rise. YoY consumer prices rose 6.4% in January. That was well below the recent peak of 9.1% in June, but still well above the Fed’s inflation target of 2%.
Since March of last year, the Fed has been fighting inflation by raising interest rates eight times. But despite the resulting higher borrowing costs for individuals and companies, the labor market remains surprisingly robust. That’s actually a worrying sign for the Fed, as strong labor demand tends to fuel wage growth and overall inflation. Employers added a sizzling 517,000 jobs in January and the unemployment rate fell to 3.4%, the lowest since 1969.
The Fed is believed to be even more closely monitoring the inflation indicator — the index of prices for personal consumption expenditure — released on Friday than the government’s better-known CPI.
Typically, the PCE index shows a lower level of inflation than the CPI. This is partly because the sharp rise in rents carries twice as much weight in the CPI as in the PCE.
The PCE price index also attempts to account for changes in people’s shopping behavior as inflation rises. As a result, it can capture emerging trends – for example, when consumers switch from expensive national brands to cheaper private labels.
The consumer price index showed a worrying rise in December-January, up 0.5% – five times the November-December increase.
Likewise, government-measured wholesale inflation, which measures price increases before they hit consumers, accelerated 0.7% in December-January after falling 0.2% in November-December.
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