In­fla­tion in­crease up­ping wor­ries over rate hikes

Honolulu Star-Advertiser - - BUSINESS -

WASHINGTON >> In­fla­tion pres­sures ap­pear to be build­ing in the U.S. econ­omy, a prospect that is height­en­ing anx­i­ety about po­ten­tially higher bor­row­ing rates that could slow eco­nomic growth.

The lat­est source of con­cern was a re­port Wed­nes­day that showed a key mea­sure of in­fla­tion ris­ing in Jan­uary by the sharpest rate in a year. The in­crease was led by higher prices for cloth­ing, hous­ing and auto in­sur­ance.

Some econ­o­mists cau­tioned, though, that some of those price in­creases are tied to tem­po­rary fac­tors and might not sig­nify sus­tained in­fla­tion.

At the same time, the govern­ment re­ported that Amer­i­cans cut back on their re­tail spend­ing in Jan­uary, lead­ing some an­a­lysts to down­grade their fore­casts for eco­nomic growth in the Jan­uaryMarch quar­ter.

Mod­estly higher in­fla­tion could lead the Fed­eral Re­serve to more quickly raise short-term in­ter­est rates, which could lead to higher bor­row­ing costs for in­di­vid­u­als and busi­nesses. If in­di­vid­u­als have to pay more for a home loan or if busi­nesses have to ab­sorb higher lend­ing rates in or­der to ex­pand, then bor­row­ing and spend­ing will typ­i­cally slow.

Wed­nes­day’s data makes it more likely that the Fed will raise rates four times this year, econ­o­mists said, rather than the three in­creases that Fed pol­i­cy­mak­ers had fore­cast in De­cem­ber. Most an­a­lysts ex­pect the Fed to re­sume rais­ing rates in March. It most re­cently did so in De­cem­ber.

A closely watched barom­e­ter of “core” U.S. con­sumer prices, which ex­cludes the volatile cat­e­gories of food and en­ergy, rose

0.3 per­cent from De­cem­ber to Jan­uary, the La­bor Depart­ment said Wed­nes­day. That was the sharpest monthly in­crease since Jan­uary 2017.

Over­all in­fla­tion rose 0.5 per­cent, the most since Septem­ber. Gas prices, up 5.7 per­cent, drove much of that in­crease.

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