Ris­ing prices stoke in­fla­tion fears

In­creases led by higher cloth­ing costs, more ex­pen­sive car in­sur­ance.

The Palm Beach Post - - BUSINESS - By Christo­pher Ru­gaber

WASH­ING­TON — U.S. con­sumer prices, ex­clud­ing the volatile food and en­ergy cat­e­gories, rose 0.3 per­cent last month. That was the big­gest climb in a year and has in­ten­si­fied in­fla­tion fears in fi­nan­cial mar­kets.

Over­all con­sumer prices rose 0.5 per­cent in Jan­u­ary, the most in four months, the La­bor Depart­ment said Wed­nes­day. In­fla­tion rose 2.1 per­cent from a year ear­lier and core prices in­creased 1.8 per­cent. The in­creases were led by much higher cloth­ing costs and more ex­pen­sive car in­sur­ance.

Both mea­sures show that in­fla­tion is mostly con­tained, but the in­crease in core prices will likely make in­vestors ner­vous. An­a­lysts are hy­per-fo­cused on whether faster price in­creases may cause the Fed­eral Re­serve to raise short-term in­ter­est rates faster than ex­pected. Higher in­ter­est rates make it more ex­pen­sive for con­sumers and busi­nesses to bor­row and spend and could slow growth.

“We think the in­crease in core in­fla­tion is a sign of things to come over the rest of the year,” said Michael Pearce, U.S. econ­o­mist at Cap­i­tal Eco­nomics.

Pearce ex­pects core in­fla­tion will reach nearly 2.5 per­cent in the spring and keep ris­ing. Other economists fore­cast that core prices won’t reach that level un­til the end of the year, if at all.

In­fla­tion was largely dor­mant for most of the past decade, but in­fla­tion fears — at least in the fi­nan­cial mar­kets — have roared back this year. It’s a sharp shift from last year when con­sumer price growth slowed, even as the econ­omy grew and the un­em­ploy­ment rate fell. These are trends that typ­i­cally push in­fla­tion higher.

Fears of higher prices wors­ened ear­lier this month af­ter a gov­ern­ment re­port in early Fe­bru­ary show­ing wages grew in the past year at the fastest pace in eight years. That sparked a mar­ket sell-off that sent stock in­dexes down 10 per­cent be­fore re­bound­ing this week.

Cloth­ing costs jumped 1.7 per­cent in Jan­u­ary af­ter three months of de­clines. That was big­gest monthly gain since 1990. Auto in­sur­ance prices rose 1.3 per­cent, the most since 2001.

Ga­so­line prices rose 5.7 per­cent last month, push­ing up the head­line in­dex. Gas prices have risen a bit more this month: On Wed­nes­day, the na­tion­wide av­er­age gas price was $2.56 a gal­lon, up three cents from a month ear­lier.

De­spite the mar­ket’s jit­ters, in­fla­tion isn’t yet much of a threat to con­sumers. The 1.8 per­cent in­crease in core prices is still be­low the Fed’s 2 per­cent tar­get. The Fed fol­lows a dif­fer­ent in­fla­tion gauge, which hasn’t con­sis­tently topped 2 per­cent for six years.

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