Five-year high for US inflation in biggest jump in consumer prices since 2013
Consumer prices in the US jumped in January by the most since 2013 as higher oil prices continue to make their impact around the world.
Prices increased by 0.6 per cent in January to push annual inflation to 2.5 per cent, higher than expected, according to the US Bureau of Labour Statistics (BLS).
Rising petrol prices contributed half of the increase as fuel prices rose by 7.8 per cent. Petrol prices have soared after the Organisation of the Petroleum Exporting Nations (Opec) cut production in November.
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The US dollar rose sharply against a basket of currencies in response. The stronger dollar drove sterling below $1.24 for the first time since mid-January.
Inflation had previously risen above the Federal Reserve’s two per cent target for the first time since 2014 in December, after a two-year period of low price growth and even bouts of deflation.
Janet Yellen, chair of the Federal Reserve, ascribed the rise in inflation mainly to the gradual recovery in energy prices as well as stabilising import costs.
In testimony to the US Congress, Yellen said “gradual increases” in its main interest rate, the federal funds rate, would be necessary to hit its targets on price stability and employment.
Read more: US inflation breaks above two per cent for first time since 2014
Inflation is widely expected by economists to rise if US President Donald Trump carries out even a relatively small portion of his campaign promises of a trillion-dollar boost to government investment.
While Yellen has stuck to the line it is “too early” to judge Trump’s fiscal policies, a big inflationary boost in government spending would likely raise pressure for an interest rate hike.
The Federal Reserve last raised the federal funds rate in December, but held its target range at 0.5-0.75 per cent at its last meeting this month.
Markets are currently pricing in a probability of around 18 per cent for a further hike at the Fed’s next rate-setting meeting on 15 March, according to calculations by CME Group based on federal fund futures prices.