Rising rents and medical costs lifted underlying US inflation in January by the most in nearly 4-1/2 years, signs of an uptick in price pressures that could allow the Federal Reserve to gradually raise interest rates this year.
The Labor Department said on Friday its consumer price index, excluding the volatile food and energy components, increased 0.3% last month. That was the biggest gain since August 2011 and followed a 0.2% rise in December, Reuters reported.
In the 12 months through January, the core CPI advanced 2.2%, the largest rise since June 2012. The CPI had increased 2.1% in December. The Fed has a 2% inflation target and monitors a price measure that is running well below the core CPI.
Economists polled by Reuters had forecast core CPI up 0.2% last month and increasing 2.1% from a year ago.
Inflation is being watched for clues on whether the Fed would continue raising interest rates this year after the US central bank lifted borrowing costs in December for the first time in nearly a decade.
Tighter financial market conditions in the wake of a recent sharp stock market sell-off and slowing domestic and global growth have almost wiped out bets for a March rate increase.
Signs of a pick-up in underlying inflation are likely to be welcomed by Federal Reserve officials, but significant gains remain a challenge against the backdrop of very low inflation expectations by households.
Still, the firming in the core CPI, together with a strengthening labor market suggest rate hikes for the rest of the year remain on the table.
The overall CPI was unchanged last month after slipping 0.1% in December. The CPI increased 1.4% in the 12 months through January, the biggest rise since October 2014, after gaining 0.7% in December.
The year-over-year inflation rate is rising as the oil price-driven weak readings in 2015 wash out of the calculation.
The government on Wednesday published revisions to the inflation data going back five years. Those revisions showed both the monthly CPI and core CPI readings a bit firmer in the last months of 2015 than previously reported.
Last month, the rental index increased 0.3% after a similar gain in December. Medical care costs rose 0.5%, with prices for prescription drugs also increasing 0.5%. The cost of doctor visits edged up 0.1% after falling 0.2% in December. Hospital costs increased 0.4%.
Apparel prices rose 0.6% after falling for four straight months. The increase in apparel is surprising as retailers have been offering deep discounts to sell unwanted inventory. Prices for new motor vehicles advanced 0.3%.
Gasoline prices fell 4.8%, while food prices were unchanged.
The US bond market’s gauges on investors’ inflation expectations rose, erasing earlier losses. The yield premium on regular 10-year US Treasuries over 10-year Treasury Inflation Protected Securities, grew over 2 basis points to 1.29 percentage points.
