The Consumer Price Index increased by 0.4% in January, in line with the increase in December. While December’s increase in the CPI was influenced heavily by energy costs, the underlying drivers for January broadened as food prices also increased at a faster pace.
Core inflation of 0.2% for the month is still relatively contained, and core inflation of 1.0% for the past 12 months is not concerning.
Recent cost increases at the producer level are starting to become more apparent to consumers, but are unlikely to meaningfully alter spending behavior in the near term.
Rising energy and food costs do have the potential to act as a tax on the consumer and economic growth, but the recent rate of increase would need to be sustained over a longer period of time to have a meaningful impact.
The soft jobs market and a broad lack of wage pressures are helping to constrain core inflation. It’s unlikely that inflation moves to an uncomfortable level without a much tighter jobs market.
While the Fed remains committed to a reflationary strategy, they simply don’t have the ability to target commodity prices specifically within the context of rising global demand for those commodities.
Outside the U.S., rising food costs are becoming a greater cause for unrest, particularly in parts of the emerging world in which income levels are lower and food costs represent a higher percentage of overall consumer spending.
Ultimately, inflation remains low on the list of near-term concerns for the U.S. economy, although the long-term concerns about excessive inflation remain.