US consumer prices rose more than expected in January but costs outside of food and energy were contained, a Labor Department report showed today, sealing expectations for more interest rate hikes.
Consumer prices surged 0.7 percent last month, above Wall Street forecasts for a 0.5 per cent increase, as energy costs soared. But the closely watched core Consumer Price Index, which excludes volatile food and energy costs, rose just 0.2 per cent, matching economist expectations.
Analysts said the big gain in overall prices will catch the attention of the Federal Reserve and cements market expectations for an additional rate increase in March and perhaps one more in May.
"We can't dismiss the 0.7 number because people actually do spend money on food and energy, that's something to be thinking about and that's something that the Fed might have to be thinking about," said Richard Sichel, chief investment officer at Philadelphia Trust Co.
Sichel said the ability of retailers to pass on higher prices to consumers would boost profit margins, and US stock futures gained on the report. US Treasury bond prices erased losses and the dollar weakened slightly.
Over the past year, consumer prices have climbed 4 per cent, the largest 12-month increase since October 2005 and an acceleration from December's 3.4 per cent increase. The rise in consumer prices since January 2005 is well above the 3.6 per cent increase in average weekly earnings in the same period - meaning consumer budgets are not keeping pace with rising prices.
On a year-over-year basis, core prices were up 2.1 per cent, however, a slowdown from December's 2.2 per cent increase and in-line with Wall Street forecasts.