(Bloomberg) — The inflation gauge that Federal Reserve Chair Jerome Powell has said “may be the most important” climbed by the most since late 2021 in January, raising pressure on policymakers to keep on hiking interest rates.
(Bloomberg) — The inflation gauge that Federal Reserve Chair Jerome Powell has said “may be the most important” climbed by the most since late 2021 in January, raising pressure on policymakers to keep on hiking interest rates.
Services prices excluding the housing and energy categories rose 0.58% last month from December, and by 4.61% from a year earlier, Bureau of Economic Analysis data showed Friday.
“This word disinflation can’t be said anymore — inflation is heading the wrong way,” Mohamed El-Erian, chairman of Gramercy Funds and a Bloomberg Opinion columnist, said on Bloomberg Television.
That’s a sharp contrast with Powell’s assessment little more than three weeks ago, when he said, “We can now say, I think for the first time that the disinflationary process has started.”
Friday’s price data came in a broader report that also showed a strengthening in consumer spending in January. The figures rounded out a picture of an economy that picked up steam at the start of the year, with faster job gains and a drop in the unemployment rate to 3.4%, the lowest in more than half a century.
That strengthening in the jobs market may be one reason Powell’s price gauge is also running hot. The so-called core services ex-housing category is thought to be largely wage dependent. It includes everything from health care, education and the hospitality industry to haircuts.
Read More: Honky-Tonk Wage Hikes Keep the Pressure on Prices — and Powell
“This may be the most important category for understanding the future evolution of core inflation,” Powell said in Nov. 30 remarks.
Following the Friday data release, interest-rate futures reflected bets on the Fed raising its benchmark rate by at least a quarter point in March, with further 25 basis-point moves in May and June. That would bring the target-rate range to 5.25% to 5.5%.
Two-year Treasury yields rose past 4.80%, reaching the highest since 2007.
–With assistance from Reade Pickert.
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