CPI, Retail Data Not Pretty But May Overstate U.S. Economic Pain

U.S. Consumer Prices Rise More Than Expected in January

Faster-than-projected U.S. inflation and an unexpected decline in retail sales at the start of the year may cause some indigestion on Wall Street, but probably don’t mean much pain for the economy.

The core consumer price index, which excludes volatile food and energy costs, rose 0.3 percent in January from the prior month, the biggest advance in a year and exceeding the 0.2 percent median estimate of economists, a Labor Department report showed Wednesday. Separate figures showed purchases at retailers dropped 0.3 percent after a downward revision to December.

Treasuries slumped and investors marked up expectations for Federal Reserve interest-rate increases. The inflation report was hotly anticipated following robust wage data earlier this month that sent yields higher and started a rout in equities that pushed the main indexes into the first correction in two years.

While the retail figures support analyst forecasts that consumption will slow this quarter on the heels of the biggest quarterly advance in more than a year, consumer spending will likely be buttressed this year by wage growth, a tight labor market and tax cuts.

Inflation on the Rise

U.S. consumer prices jumped more than forecast last month

Source: Bureau of Labor Statistics