US inflation in higher-than-expected rise

US core consumer prices rose at the fastest pace in more than a year in January, indicating a long period of slowing inflation had run its course.

The US Labor Department said its core Consumer Price Index, which excludes food and energy costs, increased 0.2 per cent – the largest gain since October 2009. The index rose 0.1 per cent in December.

The increase, which was above economists' expectations for a 0.1 per cent gain, was driven by rises in the cost of clothing, shelter and airline fares.

Overall CPI rose 0.4 per cent month-on-month – a 1.6 per cent annualised rate – after increasing by the same margin in December. Economists had expected headline CPI to rise 0.3 per cent last month.

Food and energy accounted for over two-thirds of the rise in overall CPI, with petrol prices up by 3.5 per cent on December’s level and food prices 0.5 per cent higher.

Clothing prices were up one per cent while the price of airline tickets rose 2.2 per cent.

Paul Dales at Capital Economics said the increase was due to surging commodity prices.

“The annual headline inflation rate… will climb to around 2.5 per cent by mid-year, as the 85 per cent surge in agricultural commodity prices since mid-2010 really starts to feed through,” he said.

But he cautioned that the core rate rise was still not a huge concern.

“We suspect the increase in clothing prices last month at least partly reflects smaller than normal discounts in the January sales," he said.

“But the annual rate of core inflation edged up to one per cent last month, from 0.9 per cent, and we expect it to remain at around that level for most of this year."

Other economists agreed the inflation rise was unlikely to be fast enough to trouble policymakers at the Federal Reserve, who are still pumping money into the economy.

“It is in line with our view that the disinflation process bottomed in the fourth quarter. We do not see pricing power being passed along yet," said Michael Gapen, a senior US economist at Barclays Capital in New York.