[WASHINGTON] US consumer prices increased in January, with a gauge of underlying inflation posting its largest gain in 12 months, bolstering views that price pressures will accelerate this year.

The Commerce Department said on Thursday consumer prices as measured by the personal consumption expenditures (PCE) price index, rose 0.4 per cent. That was the biggest increase since September and followed a 0.1 per cent gain in December.

In the 12 months through January, the PCE price index rose 1.7 per cent after a similar gain in December because of base effects. Excluding the volatile food and energy components, the PCE price index advanced 0.3 per cent in January - the largest gain since January 2017.

The so-called core PCE price index rose 0.2 per cent in December. Unfavorable base effects also kept the annual increase in the core PCE price index at 1.5 per cent in January. The core PCE index is the Federal Reserve's preferred inflation measure.

Economists polled by Reuters had forecast the core PCE price index rising 0.3 per cent in January and advancing 1.5 per cent year-on-year. The core PCE price index has undershot the US central bank's 2 per cent target since mid-2012.

Inflation is expected to breach its target this year as a tightening labor market boosts wage growth. Faster economic growth, spurred by a US$1.5 trillion tax cut package and increased government spending, is also seen stoking inflation.

Fed Chairman Jerome Powell on Tuesday offered an upbeat assessment of the economy, telling US lawmakers "my personal outlook for the economy has strengthened since December." Mr Powell also acknowledged that "fiscal policy is becoming more stimulative." Those remarks prompted traders to raise their bets on four rate increases this year. The Fed has forecast three rate hikes in 2018, but economists expect that will be revised up when the central bank publishes its projections at the end of the March 20-21 policy meeting.

Higher inflation cut into consumer spending growth in January. Consumer spending, which accounts for more than two-thirds of US economic activity, gained 0.2 per cent. That was the smallest increase since August and followed a 0.4 per cent advance in December.

When adjusted for inflation, consumer spending fell 0.1 per cent, declining for the first time since January 2017. The so-called real consumer spending rose 0.2 per cent in December. The drop in real consumer spending in January suggests consumption will slow from the fourth-quarter's robust 3.8 percent annualized pace.

It was also the latest indication that economic growth moderated at the start of the year after a 2.5 per cent rate of expansion in the fourth quarter. Industrial production, home sales and core capital goods orders fell in January.

But spending remains underpinned by a strong labor market, which Fed officials consider to be near or a little beyond full employment. Personal income rose 0.4 per cent in January after increasing by the same margin in December. Wages increased 0.5 per cent in January after rising 0.4 per cent the prior month.

Savings increased to US$464.4 billion in January from Us$363.2 billion in the prior month. The saving rate jumped to 3.2 per cent from 2.5 per cent in December. Savings in January were boosted by tax cuts, the Commerce Department said.

REUTERS