Fed’s inflation gauge rose 6.1 percent annually in January

Prices for consumer goods rose 0.6 percent in January and 6.1 percent in the preceding 12 months, according to data released Friday by the Commerce Department.

The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, showed prices steaming ahead in January as consumer spending spiked and incomes stayed flat. The PCE without food and energy prices rose 0.5 percent in January and 5.2 percent on the year.

Consumer spending bounced back sharply from a December plunge even as inflation held firm. Personal consumption expenditures grew 2.1 percent last month after falling 0.8 percent in December, and by 1.5 percent when adjusted for inflation.

Personal incomes, however, rose just 0.1 percent without adjusting for rising prices. 

“Consumers were in a spending mood in January despite Omicron and the highest inflation in four decades. Omicron led US consumers to pare back their spending on high-contact services, but this was largely offset by more purchases of durable goods, especially autos,” wrote Lydia Boussour of Oxford Economics in a Friday analysis. 

Despite a record-breaking surge in COVID-19 cases driven by the omicron variant in January, the U.S. economy held up better than many economists had expected. The U.S. added 467,000 jobs last month, and consumer spending recovered sharply after dipping during December.

Even so, the outbreak still shifted more consumer spending toward goods snarled up in disrupted supply chains and away from services in industries still struggling to recover from the pandemic, such as dining, travel and entertainment.

The steady march of inflation and a likely jump in energy prices driven by the Russian invasion of Ukraine will keep the Federal Reserve on track to raise interest rates next month. While some Fed officials have opened the door to a 0.5 percentage point rate increase — twice the size of a typical hike — others have urged caution, particularly as markets process the implications of new sanctions on Russia.

Updated at 9:21 a.m.