Inflation in the United States is inching higher, reducing the threat of corrosive downward spiral in prices that worried the Federal Reserve for much of last year.
The consumer price index rose 1.6 per cent in January from a year ago, faster than the 1.5-per-cent annual rate in December, the Labor Department reported Thursday.
Policy makers at the Fed should take comfort in the latest data, which show prices are moving closer to the central bank’s inflation target of 2 per cent. The CPI had been trending in the other direction, stuck at levels closer to 1 per cent in 2013, giving the Fed another reason to deploy aggressive stimulus measures.
The January numbers were in line with Wall Street expectations.
Two months of faster inflation won’t be enough to prompt the Fed to hurry its plan to slowly wind down its monthly asset-purchase program, but the data will bolster the central bank’s resolve to carry on.
Minutes of the Fed’s January policy meeting, released Wednesday, showed officials were confident that prices would pick up in the months ahead, but remained wary that inflation remained off target.
Higher energy prices applied most of the upward pressure on the CPI in January, outweighing a decline in the cost of gasoline from a year ago. Shelter costs rose 2.6 per cent on the year. Prices for services, excluding those related to energy, were 2.3 per cent higher.
Economists noted that the cost of services, for the most part set by domestic conditions, stands in contrast to stagnant prices of goods, which are subject to global forces. The Labor Department said the cost of goods, excluding energy and food items, was 0.3-per-cent lower in January than a year earlier.
Stagnant prices of goods suggests weak global demand amidst sluggish economic growth. Those prices should begin to rise if the global economic growth picks up as most forecasters expect. “We doubt that disinflationary pressures will become persuasive in the U.S. more broadly,” Peter Newland, an economist at Barclays Capital in New York, said in a note to clients.