A key measure of U.S. inflation was little changed in January while the broader gauge slowed on lower energy costs, underscoring the Federal Reserve’s recent decision to be patient on raising interest rates.
Excluding food and energy, the so-called core consumer price index rose 0.2 percent from the prior month and 2.2 percent from a year earlier, according to a Labor Department report Wednesday. The monthly pace matched the median estimate of economists. The broader CPI was unchanged from December, below forecasts, while the annual gain of 1.6 percent was the smallest since June 2017.
The data suggest inflation remains around the Fed’s 2 percent target, with prices getting a lift from steady wage gains. Fed officials have signaled a pause on raising rates amid global growth risks and headwinds from trade.
Even so, Treasury yields and the dollar rose after the report amid some hints that core inflation could be picking up. The latest data brought the three-month annualized increase to 2.65 percent, the fastest since March. If such acceleration is sustained, the Fed could have more reason to reconsider its rate pause.
A separate Labor Department report on Wednesday illustrated how prices are affecting consumers: average hourly wages, adjusted for inflation, increased 1.7 percent in January from a year earlier, the biggest increase since mid-2016, reflecting the slowdown in the main inflation gauge.
Fed Patience
Since raising rates in December for a fourth and final time in 2018, Chairman Jerome Powell and his colleagues at the central bank have pledged to be patient in deliberating another increase.
Powell signaled at his last press conference in late January that borrowing costs are unlikely to rise until inflation accelerates. “I would want to see a need for further rate increases, and for me, a big part of that would be inflation,” he said. “It wouldn’t be the only thing, but it would certainly be important.”
While policy makers projected two 2019 rate hikes at their December meeting, investors expect no moves for the whole year, according to pricing in rate futures. Economists see one interest-rate increase this year, cutting their estimates from as many as three more expected in November, according to a Bloomberg News survey this month.
Release of December data for the Fed’s preferred inflation gauge -- a separate measure tied to consumption -- was delayed by the government shutdown. The gauges tend to run slightly below the Labor Department’s CPI measures.