After years of slow growth, consumer prices in January rose at the quickest pace in four years, putting The Federal Reserve in the spotlight to raise interest rates soon.
The consumer price index, which measures the fluctuations in costs for everything from wine to haircuts, jumped 0.6% from December to January. That’s the largest month over month increase since February 2013.
The core consumer price index, which subtracts the unpredictable prices of food and energy from the mix, went up 0.3%. Still, that is the biggest such uptick in five months.
Overall, the cost of living in America rose by 2.5% from the same time last year, the largest such increase in about five years. Excluding the cost of food and energy again, the year over year increase was 2.3%.
The Federal Reserve strives for a 2% annual inflation rate and has only raised interest rates twice in the past decade, a sign of how difficult it has been for the country to leave the recession in the rear-view mirror.
But there it might now be. Federal Reserve Chair Janet Yellen in a testimony before the Senate on Tuesday said the next rate hike could come as early as next month.
The dramatic rise in prices in January surprised many economists. James Kelleher, a senior analyst at Argus Research, predicted inflation to be at 0.2 or 0.3%.
“This is a doubling on that,” Kelleher said. “While the economy appears good because of signs of global recovery, our biggest fear is that the Federal Reserve is behind the curve of inflation.”
He added: “Like any machine, you want it to run well and not overheat.”
Yellen also said the Fed should act sooner than later. If the department waits too long, she said in her testimony, it’ll have to raise rates rapidly. That could result in a recession.
A climb in gasoline prices was largely responsible for the overall surge in consumer costs. Gas prices increased 7.8% last month.
Ronnie Mason, a cashier at 76 Gas Station in Seattle,Washington, said that more expensive gas hasn’t affected demand.
“Everyone complains,” Mason said, “but they still don’t have much choice when every gas station in Seattle is expensive.”
Apparel, housing, new vehicle and airline costs also played major roles in the overall increased cost of living. Even food prices – which had remained frozen for six months in a row – moved up 0.1% in January.
“If inflation spirals upward, it will erode living standards for those on fixed incomes, such as the elderly and disabled,” said Alan Krueger, an economics professor at Princeton University.
“If it is a one-time jump, it is fine. If it is a new trend, it is worrisome,” Krueger said.
With Donald J. Trump in the White House, it’s difficult to find one person who has committed to a prediction of where prices will go. But Kelleher said some of Trump’s tax policies, such as one proposal to tax imports, could raise prices at companies that use and sell products from outside America.
“Imagine that everything you buy at Walmart went up 20 percent,” Kelleher said. “It would be crushing for the average consumer.”