U.S. consumer prices likely increased solidly in January, boosted by rising gasoline and rents, but annual inflation growth is expected to have slowed as the large price gains from last year drop out of the calculation.
Despite the anticipated moderation in the annual inflation rates, Wednesday's report from the Labor Department will probably not change expectations for an acceleration in price pressures this year. A surge in annual wage growth in January ignited inflation concerns, sparking a sell-off on Wall Street and lifting benchmark U.S. Treasury yields to a four-year high.
There are fears that inflation, which is seen driven by a tightening labor market and increased government spending, could force the Federal Reserve to be a bit more aggressive in raising interest rates this year than is currently anticipated.
The U.S. central bank has forecast three rate hikes this year, with the first increase expected in March.
"The ingredients are in place for stronger inflation this year, but the acceleration is going to be fairly gradual," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. "A significant acceleration in inflation is something to worry about in 2019."
The Consumer Price Index probably increased 0.3 percent in January after gaining 0.2 percent in December, according to a Reuters survey of economists. The year-on-year increase in the CPI is seen slowing to 1.9 percent from 2.1 percent in December because of less favorable base effects.
Excluding the volatile food and energy components, the CPI is forecast rising 0.2 percent after a similar gain in December. The year-on-year rise in the so-called core CPI is expected to have moderated to 1.7 percent from 1.8 percent in December. The core CPI is viewed as a better measure of underlying inflation trends.
The Fed tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently undershot the U.S. central bank's 2 percent target since mid-2012. Economists also expect the increase in the annual core PCE index slowed down in January from 1.5 percent in December. The data will be published in early March.