Economy Watch: Inflation Edges Up, Fed Says Labor Markets Tightening

Gas prices and rents were the prime drivers of the rise in the U.S. Consumer Price Index, the Bureau of Labor Statistics reported.
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics

The U.S. Consumer Price Index rose 0.3 percent in December, which was more-or-less in line with economists’ predictions, the Bureau of Labor Statistics reported. Prices were up 2.1 percent since this time last year, the largest annual jump since May 2014.

Gas prices and rents were prime drivers of the CPI increase. Core inflation, which excludes food and energy, was up a little less at 0.2 percent, which was also in line with forecasts. Year-over-year, core inflation was 2.2 percent.

Does that mean the Fed will be determined to raise interest rates more often in 2017 than during the previous two years (namely, more than once a year)? After all, one of the prime missions of the Fed is to keep a lid on inflation of more than 2 percent. Right now, the answer is unknown.

As it happened, the Fed released the latest Beige Book on Wednesday as well, and the book said that the U.S. economy, based on anecdotal evidence from all of the districts, is continuing to “expand at a modest pace across most regions from late November through the end of the year.”

All of the central bank’s districts reported varying degrees of growth in employment, and a majority described their labor markets as “tight.” Firms across the country and industries were said to be optimistic about growth in 2017. All of that, in theory, could help drive further inflation.