Consumer prices rose 1.4 percent annually through the first month of 2016, the Labor Department reported Friday, up from 0.7 percent in December.
Inflation in the month was higher than private-sector economists’ expectations, which were for prices to fall slightly on a month-to-month basis. Prices held steady in January despite a nearly 3 percent drop in energy prices in the month.
Core inflation, a less-volatile gauge of inflation that strips out movements in energy and food prices, was up 2.2 percent on the year, the highest such mark since 2012.
Overall, Friday’s update to the Consumer Price Index suggested that headline inflation is recovering, after bottoming out in 2015.
The report will likely reassure Federal Reserve chairwoman Janet Yellen and other officials at the central bank that they have been right to suggest that inflation will pick up once the drop in oil prices washes through the economy. The Fed has a 2 percent target for inflation.
Over the past year, according to the latest numbers, gas prices are down by more than 7 percent, and energy prices are down overall.
Cheaper gas and heating oil has provided a boost to consumers, putting billions of dollars back into their wallets and effectively giving them a real wage increase faster than the numbers unadjusted for inflation would suggest.
Falling commodity prices, in the Fed’s view, are related to the same factors that have rattled markets and driven up the dollar in recent months, namely the possibility of a major slowdown in China and elsewhere.
But the latest price changes indicate that the domestic economy is still recovering, increasing price pressures. The prices of services, rather than goods, are up 3 percent annually, setting aside the energy sector.
At its most recent meetings, the Fed has said that it will look for evidence that inflation is returning to the 2 percent target before deciding to raise rates again this year, after it increased its target range in December.
Yellen has said actual increases in inflation are not necessary for her to believe that inflation will rise in the future. Instead, other signals, such as job growth and stable inflation expectations, would be enough to convince that inflation was on the way.
“This report will feed into the Fed’s inflation concerns and will cause the Street to lift probability of a March rate hike,” Mizuho Securities’ Steven Ricchiuto wrote of Friday’s Consumer Price Index data.
While the Fed targets 2 percent inflation, the index it uses is not the same as the Consumer Price Index. Instead, it uses a gauge that typically runs slightly higher than the Consumer Price Index, meaning that core inflation at 2.2 percent is still not necessarily at the target.
