WASHINGTON: U.S. underlying consumer prices picked up in January, while the number of Americans filing claims for unemployment benefits rose slightly last week, suggesting the economy was stable enough for the Federal Reserve to keep interest rates on hold this year.
The reports from the Labor Department on Thursday followed on the heels of Fed Chair Jerome Powell's remarks to lawmakers this week that the "economy is in a very good place, performing well." Powell added that "over the next few months, we expect inflation to move closer to 2per cent, as unusually low readings from early 2019 drop out of the 12-month calculation."
The U.S. central bank last month left interest rates steady. It is widely expected to keep monetary policy on hold this year after it reduced borrowing costs three times in 2019.
The consumer price index excluding the volatile food and energy components rose 0.2per cent in January as Americans paid more for accommodation and apparel, after edging up 0.1per cent in December. The so-called core CPI was up by an unrounded 0.2423per cent last month. Underlying inflation in January was also lifted by increases in the prices of airline tickets, healthcare, recreation and education.
In the 12 months through January, the core CPI increased 2.3per cent, rising by the same margin for four straight months. Economists polled by Reuters had forecast the core CPI increasing 0.2per cent in January and gaining 2.2per cent year-on-year.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2per cent inflation target. The core PCE price index rose 1.6per cent on a year-on-year basis in December. It undershot its target in 2019. January PCE price data will be published later this month.
U.S. financial markets were little moved by the data.
TIGHT LABOR MARKET
Inflation is likely to be supported by a tightening labor market. In a second report on Thursday, the Labor Department said initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 205,000 for the week ended Feb. 8.
Economists had forecast claims rising to 210,000 in the latest week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, was unchanged at 212,000 last week.
The government reported last week that the economy created 225,000 jobs in January after adding 147,000 positions in December. The unemployment rate rose one-tenth of a percentage point to 3.6per cent as more people entered the labor force, a sign of confidence in their job prospects.
Labor market strength is helping to sustain consumer spending, and supporting the longest economic expansion on record, now in its 11th year. There are, however, risks from the coronavirus. The virus, which has killed hundreds of people in China and spread to other countries, has led economists to downgrade their growth estimates for the Chinese economy.
While core inflation pushed higher in January, falling gasoline prices restrained the overall CPI, which nudged up 0.1per cent after increasing 0.2per cent for three straight months. In the 12 months through January, the CPI rose 2.5per cent, the biggest gain since October 2018, after advancing 2.3per cent in December.
In January, gasoline prices fell 1.6per cent after jumping 3.1per cent in December. Food prices gained 0.2per cent, matching December's increase. Food consumed at home ticked up 0.1per cent.
Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3per cent after rising 0.2per cent for two consecutive months. The rent index rose 0.4per cent after climbing 0.3per cent in December.
Healthcare costs rose 0.2per cent last month after surging 0.5per cent in December. Apparel prices jumped 0.7per cent after increasing 0.1per cent in December. But new vehicle prices were unchanged in January after rebounding 0.1per cent in the prior month. Prices for used motor vehicles and trucks fell 1.2per cent after decreasing 0.4per cent in December.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)