U.S. consumer prices show signs of acceleration

U.S. consumer prices were unchanged in January, as the rising costs of housing and health care were largely offset by cheaper oil.

But the annual pace of inflation showed signs of acceleration. The U.S. Labour Department said Friday that prices have risen 1.4 per cent over the past 12 months, compared to a year ago when annual inflation was close to zero. Consumer prices climbed at the fastest annual rate since October 2014.

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Core inflation, which excludes volatile energy and food costs, rose 0.3 per cent in January. Over the past 12 months, this category, which is closely watched by the Federal Reserve, has climbed 2.2 per cent.

The rising tempo for inflation follows a Fed decision in December to raise a key short-term interest rate for the first time in nearly a decade. But the turmoil in the stock and bond markets after the Fed rate hike suggested to many investors that inflation might barely budge amid a slowing global economy.

Jennifer Lee, a senior economist at BMO Capital Markets, saidJanuary's report on consumer prices affirms the Fed's decision and raises the potential for further rate increases later this year.

"In a way, this justifies the December rate hike and keeps the Fed at the rate hike table," she said.

Fed watching closely

The combination of a strong dollar and cheaper oil has suppressed inflation across much of the economy.

Gasoline prices at the pump have dropped 24 per cent over the past year to a national average of $1.72 a gallon. At the same time, economic growth struggles worldwide have pushed up the value of the dollar, making foreign imports cheaper.

But the rate of gasoline prices declining slowed in January, weakening its downward pull on inflation.

Housing expenses which account for a third of the consumer price index have risen 3.2 per cent from a year ago. Medical services are up 3.3 per cent.

In January, prices also rose on a monthly basis for airfare, clothing and autos, while food expenses were flat.

The Fed is closely following inflation, looking for assurance that it will accelerate to 2 per cent in its preferred measure. That particular measure of personal consumption places less of an emphasis on housing. It posted a modest annual increase of 0.6 per cent in December.