WASHINGTON, D.C.: A closely watched measure of US inflation in January hit its fastest annual pace in more than four years, the Commerce Department reported Wednesday.
The Personal Consumption Expenditures price index, the US Federal Reserve’s preferred measure of inflation, grew at an annual rate of 1.9 percent, a hair’s breadth below the Fed’s two percent target and a pace not matched since October 2012.
The measure has been rising steadily since August and the increase in January boosts expectations the Fed could raise interest rates this month rather than waiting until later in the year.
The central bank held its fire for most of 2016 but Fed Chair Janet Yellen testified last month that rate hikes were coming and possibly soon, and central bankers speaking this week signaled an increase at the March 14-15 policy meeting is possible.
Other data also have pointed to rising inflation. The Labor Department’s consumer price index in January posted the largest 12-month increase in nearly five years, to 2.5 percent.
Likewise wholesale inflation, which measures prices from the seller’s perspective, had its biggest monthly gain in more than four years in January, to 1.6 percent year-over-year.
The Commerce Department report also showed that while personal income grew 0.4 percent in the month, with disposable income up 0.3 percent, this was not enough to keep pace with inflation.
The PCE price index, which tracks the value of goods and services purchased by the public, jumped 0.4 percent in January, the largest increase since February 2013, and a jump from the 0.2 percent posted in December.
The index has not seen a larger month-to-month increase since 2009.
The core PCE price index, which excludes the more volatile categories of food and fuel, gained 0.3 percent for the month, compared to 0.1 percent in the prior month. The increase was a tenth of a point faster than what analysts expected.
Gains were recorded in the prices for goods such as clothing and cars.
Year-over-year, however, core PCE was flat at 1.7 percent compared to January 2016.
Jim O’Sullivan of High Frequency Economics said core inflation tended to be stronger at the start of the year, but the rate remains “fairly tame.”
He said recent remarks from Fed members suggested the central bank was more likely to hike this month.
Amid recent data “the presumption is that there will be a rate hike unless the data are much weaker than expected or the tone in markets suddenly turns negative,” he said in a research note.
Meanwhile, personal spending rose only 0.2 percent in January, considerably slower than the 0.5 percent seen in December.
Ian Shepherdson of Pantheon Macroeconomics said January’s dip in consumption — which he called a “grim” start to the year — reflected a monthly correction in car sales from December and nose-diving spending on utilities due to the unusually warm weather.
“A slowdown in consumption is completely at odds with the post-election surge in consumers’ confidence,” he said, and raises concerns about spending in the medium term.