By, Anna Roberts
Consumer prices lay dormant this January, remaining unchanged since December signaling that an increase in inflation rates is not far off, as a stagnant figure is preferable to the decrease forecasted by many economists.
Core CPI—that’s the all items index without the unstable food and energy figures—rose 0.3 percent in January from December, the fastest month-to-month increase since 2011. In the last 12 months, the core CPI rose 2.2 percent, which continues a steadily increasing trend since May 2015. This marks the quickest pace increase of the core rate year over year since mid-2012. The cost of living for American consumers, sans food and fuel expenses, increased at the fastest rate in four years.
The continuing pattern of low oil prices was offset by an uptick in shelter costs, medical costs, and the price of food outside the home, the Bureau of Labor Statistics reported on the morning of Friday, Feb. 19. The energy index declined 6.5 percent from a year earlier, continuing its downward trend. However, this is the smallest decline in the last 12 months.
The Consumer Price Index or CPI tracks the prices of a representative basket of 80,000 goods and services that estimate the cost of living for the average American consumer. This includes everything from a pint of beer, to rental units, to an eye exam.
Associate Professor of Economics at Kennesaw State University in Georgia, Dr. Mikhail Melnik sees the decline in oil prices as a result of a decreasing demand for oil in China. Global economic headwinds are affecting prices here at home, he said.
“The meltdown in the energy prices got completely canceled out by the rise in core prices,” Melnik said. “Oil will stabilize now and then will slowly, slowly begin ascension.”
The acceleration in core prices was demonstrated by rising rents and housing costs, up 0.3 percent from December. In addition, there was a monthly gain in the price of medical services by 0.5 percent, in apparel by 0.6 percent and in new vehicles by 0.3 percent.
Deputy Head of US Research and Strategy at TD Securities, Millan Mulraine, said price spikes in heavily imported goods like vehicles and apparel can be explained by the lagging effect of a strong dollar. A strong dollar value should make the cost of foreign goods less expensive. The uptick surprised him, he said.
In regards to how the Federal Reserve should respond to these numbers at their upcoming meeting to discuss whether or not to raise interest rates in March, Mulraine said their decision hinges on wage growth.
When inflation is as low as it has been, it can signal economic weakness. If the Fed raises rates and makes it more expensive to borrow, this will be seen as a declaration of economic stability and future growth. Economists are split– some think the economy is healthy enough, others do not think it can withstand the pressure.
“You want to see wage growth north of three percent,” Mulraine said. “We’re still between two and two and a half.”
David Kelly, chief global strategist at JP Morgan, believes that it makes economic sense to raise interest rates in March, although he doesn’t think the Fed will follow through because of volatility in the global market.
“We’ve seen time and time again over the last few years that the Fed has not raised interest rates when they certainly could have because of global economic turmoil.”