U.S. consumer prices were unchanged in January but rose over the past year at the fastest clip since October 2014, a sign inflation may be firming despite a strong dollar and continued slide in energy prices.
The CPI was flat in January after falling 0.1% the previous month, the Labor Department said Friday. Excluding the volatile food and energy categories, so-called core prices rose 0.3%, the biggest monthly increase in more than four years. “Broad-based price growth is signaling that the wage and price pressures are building, an indication that the economy is expanding at a solid pace and that recessionary concerns are overdone,” PNC’s Gus Faucher said in a note to clients.
Economists surveyed by The Wall Street Journal had expected overall prices to fall 0.1% and core prices to rise 0.2%.
Falling prices for gasoline and groceries held back overall prices last month. But Friday’s report showed the gains in core prices were broad-based, driven primarily by higher shelter and medical care costs, which have risen steadily over the past year, as well as rising prices for apparel, new and used cars and food at restaurants and bars.
The overall price gauge had weakened since the summer of 2014, reflecting a steep drop-off in oil prices. The stronger dollar has also kept inflation in check, in part because it makes foreign goods relatively cheap for U.S. consumers. Over the past year, however, overall prices rose 1.4%, the largest annual increase since October 2014. Core prices rose 2.2% in January from a year earlier, the most since June 2012.
The story is clear enough: The dollar is not pushing down goods prices to the extent signaled by past experience, and that is allowing the clear upward trend in services inflation to drive up the aggregate,” Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients.
Fed are carefully monitoring inflation as they weigh whether the economy is healthy enough to raise short-term interest rates again, after lifting their rate in December for the first time in nearly a decade.
The Fed’s preferred inflation gauge, the index for personal consumption expenditures, fell 0.1% in December and was up just 0.6% from a year earlier, the Commerce Department said earlier this month. The January figures are due next week, giving Fed officials one more look at the measure before the March meeting.
Fed officials have said they believe the factors weighing on inflation--specifically, low energy prices and the strong dollar--are transitory and will eventually fade. Friday’s report suggests that may be starting to happen, some economists said. Friday’s report showed the index for energy prices fell 2.8% in January from December, matching the previous month’s decline. From a year earlier, energy prices were down just 6.5%, the smallest annual decline since November 2014.
A separate Labor Department report released Friday showed real average weekly earnings rose 0.7% in January, reflecting higher hourly earnings and a longer workweek.