Key Inflation Measure Surges at Fastest Rate Since June

An alarming sign that price pressures are entrenched in the American economy and could lead the Fed to keep raising interest rates well into this year.

AP/David Zalubowski
Gasoline prices outside a convenience store May 26, 2022, at Thornton, Colorado. AP/David Zalubowski

WASHINGTON — The Federal Reserve’s preferred inflation gauge rose last month at its fastest pace since June, an alarming sign that price pressures are entrenched in the American economy and could lead the Fed to keep raising interest rates well into this year.

Friday’s report from the Commerce Department showed that consumer prices rose 0.6 percent from December to January, up sharply from a 0.2 percent increase between November and December. On a year-over-year basis, prices rose 5.4 percent, up from a 5.3 percent annual increase in December.

Excluding volatile food and energy prices, so-called core inflation rose 0.6 percent from December, up from a 0.4 percent rise the previous month. And compared with a year earlier, core inflation was up 4.7 percent in January, versus a 4.6 percent year-over-year uptick in December.

The report also showed that consumer spending rose 1.8 percent last month from December after falling the previous month.

January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes. It follows other recent data that also suggested that the economy remains gripped by inflation despite the Fed’s strenuous efforts to tame it.

Last week, the government issued a separate inflation measure — the consumer price index — which showed that prices surged 0.5 percent between December and January, much more than the previous month’s 0.1 percent rise. 

Measured year over year, consumer prices climbed 6.4 percent in January. That was well below a recent peak of 9.1 percent in June but still far above the Fed’s 2 percent inflation target.

Since March of last year, the Fed has attacked inflation by raising its key interest rate eight times. Yet despite the resulting higher borrowing costs for individuals and businesses, the job market remains surprisingly robust. 

That is actually a worrisome sign for the Fed because strong demand for workers tends to fuel wage growth and overall inflation. Employers added a sizzling 517,000 jobs in January, and the unemployment rate fell to 3.4 percent, its lowest point since 1969.

“Reaccelerating price pressures, coupled with a still-strong labor market that is restoring incomes and is supporting demand, will keep the Fed on track to hike rates further over coming meetings,’’ said the chief United States economist at High Frequency Economics, Rubeela Farooqi.

The Fed is thought to monitor the inflation gauge that was issued Friday — the personal consumption expenditures price index — even more closely than it does the government’s better-known CPI.

Typically, the PCE index shows a lower inflation level than CPI. In part, that’s because rents, which have soared, carry twice the weight in the CPI that they do in the PCE.

The PCE price index also seeks to account for changes in how people shop when inflation jumps. As a result, it can capture emerging trends — when, for example, consumers shift away from pricey national brands in favor of less expensive store brands.

The consumer price index showed a worrisome rise between December and January: It jumped 0.5 percent — five times the November-to-December increase.

Likewise, the government’s measure of wholesale inflation, which shows price increases before they hit consumers, accelerated 0.7 percent between December and January after having dropped 0.2 percent between November and December.

Associated Press

The New York Sun

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