U.S. consumer prices rose 0.3% in January, led by a surge in energy. But even though the gain was the biggest monthly increase since July, inflation gains over the past year have remained modest.
The Labor Department reported Wednesday that the January rise in consumer prices followed 0.2% gains in both November and December and was the sharpest jump since prices rose 0.5% in July, a month when the country was re-opening following the coronavirus lockdowns in the spring.
Over the past year, inflation is up a modest 1.4%. Core inflation, which excludes volatile food and energy costs, is also up 1.4% with core prices unchanged in January.
Energy costs jumped 3.5%, led by a 7.4% surge in gasoline. Even with the spike, gasoline prices are 8.7% below where they were a year ago.
Food costs posted a modest 0.1% rise in January are are up 3.8% over the past 12 months.
The absence of inflation pressures has allowed the Federal Reserve to slash its benchmark interest rate to a record-tying low of 0% to 0.25% in an effort to help lift the economy out of the pandemic-induced recession.
Even before the pandemic hit, inflation over the past decade has been a no-show with annual price gains remaining well below the Fed’s 2% target.
Economists believe the annual inflation numbers could jump above 2% for a few months this spring, reflecting the fact that the annual comparisons will be to the spring last year when inflation was falling as the economy went into a recession.
“Consumer price inflation remains very tame,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, predicting that the upcoming rise in year-over-year inflation figures should be transitory. “The Federal Reserve should patiently look past this increase.”
She said she expected the central bank would delay the start of rate increases until the middle of 2023. The Fed raises interest rates as a way to slow economic activity and keep inflation under control.
For January, new car prices fell 0.5% and are up just 1.4% over the past 12 months. Used care prices, which had been surging in the summer and fall, fell for a third straight month, dropping 0.9% although the cost of a used car is still 10% higher than a year ago.