The US CPI increase or Consumer prices were seen to be rising more than expected during the month of January, official data showed last week. Headline CPI increased 0.5% on a month over month basis while core inflation rate rose 0.3% on the month.

This was higher than the forecasts of 0.3% on the headline and 0.2% on the core. On an annual basis, core CPI was seen accelerating 1.8% which was higher than the estimates of 1.7% increase. The headline CPI rose 2.1% on an annual basis which was higher than the forecasts of 1.9%.

The US CPI increase was attributed to higher oil prices including shelter costs such as rent, food and apparel. Energy prices were seen rising 3.0% in January compared to the previous month. Gasoline costs alone rose 5.7% while transportation services costs rose 0.8%.

U.S. Annual Inflation Rate: 2.1%, Jan 2018 (Source: Tradingeconomics.com)

The higher than expected inflation data adds to the market view about faster rate hikes from the Fed. The initial reaction was seen with the equity markets briefly dipping on the news. The last two weeks of equity market correction comes amid investor fears about higher interest rates from the Federal Reserve.

Although the headline US CPI increase was above the Fed’s 2% threshold, the Federal Reserve Committee looks to the Core PCE data which is seen as a more accurate measure of inflation. However, data suggests that the headline CPI often leads the core PCE.

Digging deeper, the inflation data showed that wage inflation remained muted. On a seasonally adjusted basis real average weekly earnings were seen falling 0.8% on a month over month basis. This brought the annual earnings to just 0.4%. Despite the somewhat mixed picture, the overall inflation landscape was seen to be showing signs of strengthening.

The real wage data comes amid a mixed picture. A few weeks ago the U.S. Labor Department said that wages were rising in the U.S.