Core Inflation Sharply Higher, Jobless Claims Jump

The Labor Department reported that overall consumer prices were flat for the second month in a row in January, however, so-called “core inflation” (i.e., excluding food and energy) rose by 0.3 percent. Importantly, the recent surge in gasoline prices was not reflected in this data (in fact, gasoline prices fell in this survey), so, look for headline inflation to pick up (perhaps in a big way) in the months ahead.

Year-over-year overall inflation fell from 1.8 percent to 1.6 percent, the lowest level in two years save for last July when this measure dipped to 1.4 percent, and, looking at this curve in the graphic above (in red), it’s easy to see how a falling inflation rate has coincided with a falling gold price.

But, after examining the components of the latest inflation report, both of those trends may soon change.

Core inflation rose 0.3 percent in January, due largely to the rising cost of apparel, transportation services, and other commodities as shown below. Also, in contrast to what you may noticed at gas stations recently, energy prices fell last month according to the government’s data with gasoline prices down some 3.0 percent.

Look for the consumer price data to show surging gasoline prices in next month’s report after pump prices have jumped 13 percent in just the last four weeks and, when combined with higher core inflation, there could suddenly be a new (more concerned) view of currently tame consumer prices.

In a separate report also released by the Labor Department, initial jobless claims jumped from an upwardly revised 342,000 to 362,000 for the week ending February 16th. Seasonal adjustments and estimates for four states (including California) in lieu of actual data make this report hard to read, however, the smoothed four-week moving average rose 8,0000 to 360,750, up slightly from a month ago.