Inflation may be less than meets the eye

Steady U.S. price gains in January masked shifts below the surface that Federal Reserve officials may ultimately find unfavorable in their quest to bring inflation back up to their 2 percent target.

So-called procyclical inflation — a measure containing the prices of goods and services that typically rise faster when employment is increasing — decelerated last month to the lowest level on an annual basis since April 2014, according to data compiled by Bloomberg News from Commerce Department figures published Thursday.

A bounce in acyclical inflation — the prices of goods and services that don’t appear to correlate with labor-market conditions — left the Fed’s preferred gauge little changed overall.

The split between procyclical and acyclical prices was highlighted in recent San Francisco Fed research, and adds to the inflation conundrum U.S. central bankers have on their hands.

Policymakers have largely dismissed an unexpected retreat in price pressures that began in early 2017 as a function of oneoff price declines — especially for that of wireless-phone services — and expect a strong job market to help lift inflation back to 2 percent.

The underlying data tell a more nuanced story.

The so-called core inflation rate they watch closely, which strips out volatile food and energy prices, was just 1.5 percent in January, and the cellphone pricing change that hit the index in March 2017 is only holding it down by about a tenth of a percentage point.