Inflation is nearing the Federal Reserve’s 2 percent target, a development that is likely to limit the possibility that the central bank backs off its plans to tighten monetary policy throughout this year.
Prices grew at a 1.3 percent annual clip through January, the Bureau of Economic Analysis reported Friday, up sharply from 0.7 percent rate the month before.
More importantly, “core” inflation, a gauge of price increases that strips out changes in food and energy prices, jumped from 1.5 percent to 1.7 percent, the highest mark since December of 2012. Fed officials view core inflation as the better measure of future inflation because it is less volatile than headline inflation.
Those inflation numbers, which came in higher than expected Friday, are from the Personal Consumption Expenditures Index, which the Fed views as more accurate than the more-widely cited Consumer Price Index.
Both indices, however, are showing the same signs of rising inflation. Last week, the Consumer Price Index for January showed core inflation running at 2.2 percent.
Inflation has run below the Fed’s target since 2012, one of the main factors swaying officials to favor keeping interest rates low and only raising them from zero in December.
In its recent statements, the Fed’s monetary policy committee has said that it would “carefully monitor actual and expected progress toward its inflation goal” in deciding whether to raise interest rates further this year.
In recent weeks, markets have discounted the possibility of rate hikes this year because of financial market turmoil and, among other indicators, declining inflation expectations.
Chairwoman Janet Yellen and other top Fed officials, however, have mostly brushed off those warning signs, counseling patience and pointing to strong job growth as a sign that the economy is still heading toward full capacity, not veering into recession.
