The favored inflation gauge of the Federal Reserve increased last month at its strongest rate since June, which is a worrying indication that price pressures are still pervasive in the US economy and may prompt the Fed to continue hiking interest rates well into this year.
According to the Commerce Department’s report released on Friday, consumer prices increased by 0.6% from December to January, a significant increase from the 0.2% increase from November to December.
Prices rose 5.4% yearly, up from a 5.3% annual increase in December.
So-called core inflation, which excludes volatile food and energy prices, increased by 0.6% from December, up from a 0.4% increase in November.
Additionally, compared to a year ago, core inflation rose by 4.7% in January instead of 4.6% in December.
The data also revealed that consumer expenditure increased by 1.8% last month compared to December after decreasing the month before.
The price report for January came in above experts’ forecasts, shattering hopes that inflation was gradually slowing down and the Fed could scale back its rate-hike strategy.
That comes in the wake of other recent data revealing that despite the Fed’s valiant efforts to control inflation, the economy is still gripped by it.
Consumer price index data released by the government last week revealed that prices increased by 0.5% from December to January, far more than the 0.1% increase seen the month before. Consumer prices rose 6.4% in January when compared year over year.
That was far lower than the previous peak, 9.1% in June, but it was still significantly above the Fed’s target rate of 2%.
The Fed has increased its benchmark interest rate eight times since March last year to combat inflation. The job market is still unexpectedly strong, despite the increased borrowing rates for individuals and businesses.
That is a matter of concern for the Fed because a high demand for labor tends to drive up wages and inflation as a whole. In January, employers created a scorching 517,000 new jobs, and the unemployment rate dropped to 3.4%, its lowest level since 1969.
According to Rubeela Farooqi, senior U.S. economist at High-Frequency Economics, “Reaccelerating price pressures, coupled with a still-strong job market that is recovering incomes and is sustaining demand, will put the Fed on track to hike rates further over coming meetings.”
The personal consumption expenditures price index, released on Friday, is said to be monitored by the Fed even more intently than the government’s more well-known CPI.
The PCE index typically displays a lower amount of inflation than the CPI.
That’s partly because rents have increased dramatically and are weighted twice as heavily in the CPI as in the PCE.
The PCE price index aims to consider adjustments in consumer behavior brought on by increases in inflation.
As a result, it can identify new trends, such as when customers switch from expensive national brands to store less expensive brands.
The consumer price index increased alarmingly from December to January by 0.5%, five times the increase from November to December.
The government’s measure of wholesale inflation, which depicts price increases before they reach consumers, also increased from December to January by 0.7% after falling from November to December by 0.2%.