Prices at the retail level jumped more than expected during January, raising concerns about rising inflation as well as interest rates, while a separate reported showed one of the biggest drivers of the U.S. economy declined by the most in nearly a year.
The Labor Department reported Wednesday that the Consumer Price Index (CPI) increased last month 0.5% from December against a 0.3% expected gain. When volatile food and energy prices are excluded, the hike was 0.3% compared to a 0.2% forecast.
The January gain is the biggest since last September, when the government’s main gauge of retail inflation rose by the same amount, followed by monthly increases of between 0.1% and 0.3%.
The department described the overall January jump as “broad based” with increases in prices for gasoline, shelter, apparel, medical care, and food. Energy rose 3% in January, with the increase in the gasoline more than offsetting declines in other energy sectors. Prices for food rose 0.2%, with food at home and food away from home both rising.
Over the past 12 months, the CPI is up 2.1%, the same year-over-year rate reported for December.
This report will likely not help financial markets’ concerns about rising inflation pressures that emerged last week with wage inflation rising at a pace not seen since 2009, according to Paul Ferley, assistant chief economist at RBC Economic Research.
“Indications of incipient wage pressures reinforced the view that labor markets are operating beyond capacity with a current unemployment rate of 4.1%. Confirmation of tightening labor markets made an even stronger case for the Federal Reserve to continue to tighten policy which weighed on financial markets,” he said.
RBC believes the inflation report will raise concerns that this wage pressure is starting to seep into consumer prices. It pointed out that the year-over-year rate for core prices remained unchanged at 1.8%,