Inflation Posts Largest Gain in Four-and-a-Half Years

U.S. inflation rose in January by the greatest amount in four-and-a-half years. The Consumer Price Index (CPI) released by the U.S. Labor Department, excluding food and energy components, increased .3% last month – the biggest gain since August 2011.

In 12 months through January 2016, the CPI reached a 2.2% annualized rate, the largest rise since June 2012. In December it had increased .2%.

In determining whether to raise interest rates, the Federal Reserve has a 2% inflation target. In December, the Fed raised interest rates for the first time in almost a decade by a quarter of a percentage point, and indicated it would possibly raise rates further this year. However, the Fed tracks another index titled The Commerce Department's Personal Consumption Expenditures (PCE). That data recorded no inflation last year and measured at 1.4% in December, below the Fed’s 2% target.

Rising rents and medical costs in January greatly contributed to the rise of inflation in the CPI. The rental index increased .3% after a similar gain in December. Medical care costs and prescription drug costs each rose .5%. Hospital costs increased .4%. The cost of going to the doctor edged up .1% after dropping .2% in December.

Apparel prices grew .6% after falling for four straight months. Prices for new motor vehicles increased .3%. Gasoline prices fell 4.8% while food prices were unchanged.