For January, headline Consumer Price Index (CPI) inflation was unchanged, thanks to falling oil prices-the energy component of the index was down 3.1% for the month.
The Core CPI, which excludes more volatile food and energy prices and is closer to the PCE inflation index that the Federal Reserve follows, was up 0.2%. That increase matched expectations from economists surveyed by Bloomberg. The January increase marked the fourth consecutive month where the Core CPI has increased by 0.2%.
The January increase in core inflation brings the annual increase in Core CPI to 2.2%. The headline CPI inflation rate is up 1.6% year over year.
The 2.2% annual increase in core inflation is above the Federal Reserve’s inflation target of 2%.
The fact that core inflation isn’t running away from the central bank–the 0.2% increase has been steady over the last four months–keeps the Fed on its current track of one or none interest rate increases in 2019. But the fact that core inflation has been consistently above the Fed’s 2% target should keep inflation worries on the agenda at the U.S. central bank. Part of the bank’s mission is to prevent expectations for higher inflation from getting imbedded in the economy. The steady 0.2% month after month increase in core inflation raises the possibility that expectations for higher inflation are indeed becoming embedded in the economy.
Which at least raises the possibility that the Fed will decide to move interest rates higher if inflation numbers stay in this range and the economy shows signs of having weathered the shutdown, China trade war, and Brexit macro scares. And at a time when the financial markets have pretty much abandoned all thoughts of an interest rate increase for 2019.
