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Inflation is back. Here's what's driving prices higher

Remember inflation? Looks like it's back.

After a long pause since the Great Recession — punctuated by worries about falling prices — consumers are paying more each month for goods and services in what seems to be a sustained pickup in rising prices.

A bigger-than-expected, 0.6 percent jump in the Consumer Price Index last month pushed the annual inflation rate to a five-year high of 2.5 percent.

Though still well below levels seen in the run-up to the Great Recession, the pickup in the pace of inflation has renewed pressure on millions of consumers' household budgets.

"Consumer prices have gained momentum in recent months," said Chris Christopher, an economist at IHS Global Insight. "This is not the best thing in the world for lower-income households living paycheck to paycheck."

But rising wages for many households have apparently offset some of the recent gains in consumer prices. Retail sales last month rose 0.4 percent last month, as shoppers snapped up bargains at post-holiday sales.

Those sales figures were also driven by a surge in gasoline prices. But other categories, including transportation and apparel, also posted solid price rises.

Consumer confidence has also picked up since November as the uncertainty lifted surrounding of outcome the presidential election.

That uncertainty may be offset by a wide range of policy changes promised by the Trump administration and GOP-controlled Congress, which has pledged major overhauls in taxes and trade. A tax cut for low- and middle-income households could spur consumer spending, helping to support prices increases.

And Trump's tough talk on trade could bring new tariffs on imported goods that further increase prices for consumers.

But details have been sketchy, leaving economists guessing about the potential impact of the blizzard of proposals.

"Too many in Congress don't have a clue that there are consequences to making the changes they are proposing," said Joel Naroff at Naroff Economic Advisors.

Uncertainty over the prospects for major changes in tax reform, trade infrastructure spending and the Affordable Care Act — among other Trump campaign pledges — has complicated matters for the Federal Reserve, which has recently begun nudging interest rates higher.

In the past, the Fed has typically sought to use higher rates to cool off inflation and offset future price increases. But Fed Chair Janet Yellen told senators on Tuesday that uncertainty about Trump's policies has made the central bankers' job more complicated.

"We don't want to base current policy on speculation about what may come down the line. We will wait to gain greater clarity on policy changes," she said.

But the Fed also faces risks if it waits too long. One of the main forces stoking higher prices is the rebound in oil prices, which fell sharply in 2014 and pulled overall inflation lower.

Now, as oil prices have begun rising again, those higher energy costs have begun working their way through the economy. The producer price index, which measures the costs of producing consumer goods, jumped by 0.6 percent in January, a sign that consumer price increases are likely to continue.