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February 15, 2017

CPI up 0.6%, could mean rate hike in March

The consumer price index rose 0.6 percent in January and increased 2.5 percent year over year – the highest yearly growth rate since March 2012, according to a NAFCU Macro Data Flash report Wednesday.

This growth raises the prospects for an interest rate hike in March, said NAFCU Chief Economist and Director of Research Curt Long.

"Overall, inflation has been trending up steadily lately," Long wrote. "Fed Chair Yellen recently indicated that further rate hikes may be appropriate soon if labor market conditions and inflation continue to strengthen, and this CPI report certainly increases the odds of a rate hike in March."

Futures company CME Group places odds of a March rate hike at 27 percent – up from the 13 percent odds given before Yellen's remarks before the Senate Banking Committee Tuesday.

"Rents and medical care costs continue to rise steadily," Long continued. "Meanwhile, there has been little inflationary pressure for food, and the U.S. dollar has begun to rebound lately after depreciating somewhat in January."

Energy prices increased 4 percent in January and were up 11.1 percent year over year, according to data from the Bureau of Labor Statistics. Food prices increased 0.1 percent after six months of flat growth and were down 0.1 percent year over year, marking the fifth month of year over year decreases.