A key measure of consumer prices showed inflation accelerating in January as spending, income, and saving surged.
The personal consumption expenditure price index jumped 0.6 percent in January compared with a month earlier, the Commerce Department said Friday. The prior month’s inflation rate was revised up from 0.1 percent to 0.2 percent.
Compared with a year ago, the personal consumption expenditure (PCE) price index was up 5.4 percent. The 12-month gain for December was revised up from five percent to 5.3 percent.
Economists had expected a much milder increase. The median forecast was for a 0.4 percent price increase month-to-month and a 4.9 percent increase for the year.
The annual and monthly figures indicate that inflation has accelerated. The revisions indicate that the apparent reprieve from inflation at the end of last year was less substantial than it appeared. The comparison with estimates indicates that economists have been underestimating the strength of inflationary pressures in the economy.
The PCE price index is used in the calculations of economic growth by the Commerce Department. It is often called the PCE deflator because it is subtracted from nominal growth in gross domestic product to calculate the real—meaning, inflation-adjusted—rate of growth.
The Federal Reserve uses the PCE price index as the basis for its two percent inflation target. Fed officials use the index when making the inflation forecasts—known as the Summary of Economic Projections—that are released at every other meeting of the Federal Open Market Committee.
The core PCE price index, which excludes volatile food and energy prices, also rose 0.6 percent compared with the prior month and the November to December increase was revised up from 0.3 percent to 0.4 percent. Economists had forecast a 0.4 percent gain from the prior month.
Compared with January of last year, core prices were up 4.7 percent, defying predictions that it would decline to 4.3 percent from the initially reported 4.4 percent year-over-year gain in December. That December figure was revised up to show a 4.6 percent gain.
Prices for goods and services both increased 0.6 percent compared with the prior month. Goods prices have been expected to moderate as spending shifts toward goods but goods inflation has been surprisingly persistent. Food prices rose 0.4 percent and energy prices increased 2.0 percent.
Compared with a year ago, prices for goods are up 4.7 percent and prices for services have risen 5.7 percent. Food prices have soared, rising 11.1 percent, and energy prices increased 9.6 percent.
After inflation appeared to retreat in November and December, many analysts concluded that the Federal Reserve’s rate increases had finally begun to take hold and put the economy back on a path to price stability, which the Fed defines as two percent annual increases in the PCE price index. In January, however, inflation surged higher and revisions to earlier months indicate that it had not faded as much as thought.
The consumer price index (CPI) rose 0.5 percent compared with the month before, a big step up in the pace of price increases from the 0.1 percent recorded for December, according to data released by the Labor Department last week. The December figure was revised up from the preliminary report showing the CPI had declined by 0.1 percent. Compared with a year ago, the CPI is up 6.4 percent. Those inflation figures all exceeded expectations.
The producer price index (PPI) jumped 0.7 percent compared with December, with goods prices rising 1.2 percent and services prices rising 0.4 percent. The figures exceeded expectations and indicated that the pace of inflation had increased from the month before. Compared with a year ago, PPI was up six percent.
The PCE report also showed that consumer spending rose 1.8 percent for the month, above the expected rise of 1.4 percent. Personal income rose 1.4 percent, more than the 1.4 percent median forecast. The personal saving rate increased to 4.7 percent from 3.4 percent in December.