There was pressure in yesterday's producer price report and there's pressure in today's report on consumer prices. The CPI rose 0.6 percent vs the Econoday consensus for only 0.3 percent and a top estimate of 0.4 percent. This is the strongest showing in nearly 4 years. The core rate (less food & energy) shows less heat but is still on the high end, at plus 0.3 percent which hits the top estimate.
Energy, up 0.4 percent on the month which includes a 7.8 percent jump in gasoline prices, skewed the headline higher, but gains in the report are nevertheless broad based especially for apparel, new vehicles, and household furnishing. Housing is up a tangible 0.3 percent for a second month with medical care, however, up a moderate 0.2 percent.
The headline year-on-year rate, reflecting easy energy comparisons with 2016, is moving higher, well above the Fed's general 2 percent target at 2.5 percent. This is up 4 tenths in the month and is the highest in nearly 5 years. The core rate is also up, at a year-on-year 2.3 percent for a 1 tenth gain.
Wage inflation has yet to kick in but if it does, and it may given the strength of employment, an inflationary flashpoint may be at hand. This report, together with this morning's solid retail sales report and strong Empire State data, will no doubt raise talk of a March FOMC rate hike.
Consumer prices have been edging slowly higher though the overall year-on-year rate, due to easy comparisons against weak energy prices this time last year, has been accelerating. Forecasters see January's monthly rate rising a tangible 0.3 percent with the core rate (less food & energy) edging 0.2 percent higher.