The Bureau of Labor Statistics said that consumer prices jumped 0.5 percent in January, its fastest pace in four months. The increase in consumer inflation was led by higher energy costs, which rose by 3.0 percent in January, with gasoline prices up 5.7 percent and fuel oil up 9.5 percent. This is largely consistent with data from the Energy Information Administration, which pegged the average price for regular conventional gasoline at $2.384 per gallon on December 25 but increasing to $2.516 a gallon on January 29. At the same time, food prices rose by 0.2 percent for the second straight month. Since January 2017, food and energy costs have increased 1.7 percent and 5.9 percent, respectively.
Excluding food and energy, core consumer inflation increased by 0.3 percent in January, its highest rate in one year. Higher costs for apparel, household furnishings and supplies, transportation and medical care services and used car and trucks helped to push core consumer prices higher in the latest data, with lower costs for medical care commodities and new vehicles.
The bottom line was that the consumer price index rose by more than anticipated in January, which had pegged an increase of 0.3 percent. That will feed further speculation that inflationary pressures are picking up, and financial markets will interpret that as a sign that the Federal Reserve might raise interest rates more than previously expected. Indeed, analysts now predict three to four hikes in the federal funds rate this year, up from a prior consensus of two to three increases, with the next increase coming at the Federal Open Market Committee’s March 20–21 meeting.
With that said, it should be noted that consumer prices have risen by 2.1 percent year-over-year in January, the same pace as seen in December. That is a fairly modest rate, and while it represents an increase from 1.6 percent year-over-year in June, it remains well below the 2.8 percent pace seen last February. Moreover, core consumer prices, which exclude food and energy costs, have risen 1.8 percent over the past 12 months. This would indicate that pricing pressures remain under control for now, even if those pressures were accelerating in the monthly data.