Gas Pump photo by Michael Kappel, used under the Creative Commons’ Attribution-NonCommercial 2.0 Generic license.

Higher gasoline and apparel prices pushed up inflation last month, but consumers aren’t likely to face rapidly increasing prices.

The Labor Department reported Wednesday consumer prices rose 0.5% in January, spurred by a 5% increase in gasoline, thanks to growth in economies around the world.

“Europe and Japan have regained some momentum. Some parts of Latin America such as Brazil and Argentina are probably coming out of recession, so the global economy is picking up. That affects demand for oil,” said David Sloan, senior economist at Continuum Economics.

January’s numbers, notable for inflationary surprises, haven’t changed longer term outlooks. Analysts expect inflation to slowly creep upwards, and this month’s figures were volatile in the expected areas.

An anticipated, but overstated jump in apparel prices, the largest jump in nearly thirty years, caused so-called core CPI, which excludes volatile food and oil prices, to grow 0.3 percent, a tenth of a percent higher than expected.

FRED Apparel CPI Month Over Month 1990 - 2018
As apparel bounced back from discounted prices to start 2018, the result was the largest monthly spike in prices since February 1990.

“It’s not that apparel prices are running away from us, it’s just a makeup for the negative numbers in November and December,” said Stephen Stanley, chief economist at Amherst Pierpont. Aggressive discounting around Christmas, as retailers battled it out over gift prices, caused apparel prices to fall at the end of last year, said Sloan. Compared to last January, apparel prices are actually down nearly one percent.

And as businesses re-evaluated pricing decisions going into 2018, they looked around, saw a strong economy, and decided consumers could foot more of the bill. But they may have decided wrong. Retail sales declined 0.3 percent in January, lower than the expected 0.2 percent rise, according to Bloomberg.

“In the new year, companies often make pricing decisions, and when they see the economy’s strong, they’re more likely to increase prices significantly,” said Sloan.

While overall and core inflation was high this month, the Fed should hold to its trajectory of three rate hikes this year. The underlying economic view that price rises are slowly picking up, and that planned interest rate hikes will combat this growing inflation pressure is unchanged. With jumps this month in goods noted as particularly volatile, there are no signs of a drastic acceleration in inflation as a result of January’s numbers. Oil prices, for example, have fallen since their January high.

These are the first inflation numbers to come out under the new Fed chair, Jerome Powell, who has followed former chair Janet Yellen’s lead while working under her.

“He’s aiming for continuity rather than shaking things up,” said Stanley.

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