In a time of soaring commodity prices, it’s no surprise to learn that consumer price inflation turned modestly higher last month. The debate is over what the latest jump in the CPI Index means for inflationary pressures down the road. Is there a new inflationary surge heading our way, as some analysts warn? Or is the firming of prices last month merely a sign that disinflation/deflationary trend of last year has been reversed and stabilized?

The past isn’t necessarily a window on the future, but history at least is clear. Headline inflation rose 0.4% last month on a seasonally adjusted basis, matching December’s rise, according to the Labor Department. At that rate, CPI is advancing at its highest monthly pace in more than a year. More worrisome is core CPI’s rise, which gained 0.2% in January, the fastest pace since October 2009. These are still modest figures relative to the long sweep of history, and so there’s hardly a smoking gun in today’s report. But worries about inflation are bubbling just the same.

Monthly numbers are subject to a fair amount of noise, of course, and so for a richer measure of the trend we turn to the rolling 12-month percentage change. Here too there is a shift in the trend, or so it seems. Headline CPI rose 1.6% over the past year, the highest rate since last May (not seasonally adjusted). Core CPI is now running at 1.0% on a year-over-year basis, the highest in 10 months.

Some will declare that inflation has returned. No one should dismiss that possibility, but it’s premature to jump to conclusions. The Federal Reserve has been trying to stabilize inflation, which recently meant reversing the declining pace. And it seems to be working. Core CPI, in particular, is no longer falling on an annual basis. A 1% rise in core CPI, in fact, is thought to be at the low end of the Fed’s unofficial target range.
Still, with commodity prices soaring and inflation worries bubbling in China and other emerging market nations, this is no time to look away from the potential hazards. As Bloomberg reports today:

Growing economies in Asia and Latin America are boosting global demand for oil and other commodities, raising costs for American factories. Accelerating growth is prompting some companies to carry out beginning-of-year price increases even as consumers remain constrained by unemployment at 9 percent.

“You’re going to see more companies that attempt to pass through” higher costs, said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, who correctly forecast the gain in core prices. “How successful they are depends on the economic backdrop. We’re looking at a slightly firmer inflation backdrop.”

But a slightly firmer inflation isn’t the same as a new round of runaway inflation. Indeed, one reason for thinking that inflation isn’t poised to surge skyward in the near term arrives via the other news of the morning: a rise in new jobless claims last week of 25,000 to 410,000.
The continued weakness in the labor market “is in line with our view that the disinflation process bottomed in the fourth quarter,” Michael Gapen, a senior U.S. economist at Barclays Capital, tells Reuters today. “We do not see pricing power being passed along yet.”