The Federal Reserve’s preferred inflation gauges unexpectedly accelerated in January and consumer spending surged after a year-end slump, adding pressure on policymakers to keep ratcheting up interest rates.

The personal consumption expenditures price index increased 0.6% from a month earlier, the most since June, Commerce Department data showed Friday. Excluding food and energy, the core PCE price index also climbed 0.6%.

Personal spending, after adjusting for changes in prices, jumped 1.1%, the largest advance since March 2021 following weakness at the end of last year. The increase reflected a pickup in outlays for goods and services, including motor vehicles as well as food services and accommodation.

The median estimates in a Bloomberg survey of economists were for a 0.5% in the PCE price index and a 0.4% gain in the core. Real personal spending was projected to rise 1.1%.

Treasury yields rose and the S&P 500 index futures extended losses on the day and the dollar jumped. Swaps traders continue to price in that the Fed will likely lift its policy rate 25 basis points at its next three meetings.

From a year earlier, the PCE price index was up 5.4% in January, an acceleration from December. The core metric was up 4.7%, also faster than the previous month.

Labor Market
The latest figures underscore risks of persistently high inflation. A pullback in inflation at the end of last year ultimately proved to be more of a mirage after revisions and the latest figures. Moreover, the exceptional strength of the labor market remains a key hurdle for the Fed to reach their 2% goal.

With the unemployment rate at its lowest level in more than 53 years, intense competition for a limited supply of workers has kept upward pressure on pay growth. Higher wages paired with excess savings have underpinned consumers and allowed them to keep spending for a variety of goods and services despite those rapid price increases.

Fed officials, particularly Chair Jerome Powell, have emphasized the importance of price growth in so-called core services ex-housing for the inflation outlook. This category, which is thought to be largely wage dependent, includes everything from health care to haircuts.

Services inflation excluding housing and energy services increased 0.6% in January, according to Bloomberg calculations.

Together, the data suggest central bankers will have to raise rates higher than they expected even just a few weeks ago.

--With assistance from Kristy Scheuble.

This article was provided by Bloomberg News.