Inflation, as measured by the Consumer Price Index, rose in January by a larger than forecast 0.6%. That’s a pickup from the 0.3% rise in December and brings the 12-month inflation rate to 2.5%, the highest since March 2012.
The core CPI, which excludes volatile food and energy prices, climbed 0.3%, the most in five months, Core inflation is now running at a 2.3% annual rate. Economists surveyed by Bloomberg had expected core inflation to increase by 0.2% in January to a 2.1% annual pace.
The CPI isn’t the Federal Reserve’s preferred inflation measure–that honor falls to the Personal Consumption Expenditure Index–but the climb in the core rate does reinforce a message from several sources: Inflation is finally moving up. And is now at or above the Fed’s inflation target of 2%.
Looking at the monthly inflation report, it’s not possible to pass off this increase as the transitory effect of energy prices. Yes, gasoline prices climbed 7.8% in January, accounting for about half the increase in the headline CPI. But such core categories as apparel (up 1.4%) and new cars (up 0.9%) also rose, indicating that inflation is an economy-wide force now.
The inflation numbers provide important context for Fed chair Janet Yellen’s testimony yesterday and today before Congress: “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC [Federal Open Market Committee] to eventually raise [interest] rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she said.
A separate repot from the Labor Department showed that, after adjusting for inflation, real hourly earnings fell 0.5% in January and are now unchanged over the past 12 months.