The U.S. cost of living increased in January by the most since February 2013, led by higher costs for gasoline and other goods and services that indicate inflation is gathering momentum.
The consumer-price index rose a larger-than-forecast 0.6% after a 0.3% gain in December, Labor Department figures showed on February 15. Compared with the same month last year, costs paid by Americans for goods and services rose 2.5%, the most since March 2012.
Higher prices for gasoline, apparel and new cars show cost pressures are building as steady demand provides some companies with pricing power. The figures underscore Federal Reserve Chair Janet Yellen’s congressional testimony on February 14 that more interest-rate increases will be appropriate if inflation picks up and the labor market remains tight.
“CPI inflation has been steady in recent months amid rising energy prices,” said Sam Bullard, senior economist at Wells Fargo Securities LLC. “After the past couple years, the transitory nature of the dip in inflation due to the decline in energy prices has come to fruition.”
A 7.8% jump in the cost of gasoline accounted for about half of the increase in the January CPI. The median forecast in a Bloomberg survey called for a 0.3% month-over-month advance in the CPI.
But costs of some other goods and services also moved up. Clothing prices jumped 1.4%, the most since February 2009. Men’s apparel surged by the most on record. New vehicle prices climbed 0.9% in January, the biggest advance since November 2009.
The core CPI measure, which excludes volatile food and fuel costs, rose 0.3%, the most in five months. Core inflation increased 2.3% from January 2016.
The Bloomberg survey median called for the core index to rise 0.2% from the previous month, and 2.1% from the prior year.
“At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen told the Senate Banking Committee in prepared remarks Tuesday.
The Fed Chair reiterated that falling behind on inflation could do more harm to the economy and possibly cut short the expansion.
The Fed’s preferred inflation gauge, the Commerce Department’s personal consumption expenditures price index, has been below the central bank’s 2% target since April 2012. It finished with a gain of 1.6% last year.
“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.
The report from the Labor Department showed energy costs increased 4% from a month earlier. Food prices rose 0.1%.
The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60% of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
The higher cost of living put a dent in Americans’ paychecks in January, a separate report from the Labor Department showed on February 15. Hourly earnings adjusted for inflation fell 0.5% from the prior month and were unchanged over the past 12 months.
By Patricia Laya