2018.03.0122:25:00UTC+00U.S. Inflation Increased in January

U.S. consumer prices rose in January, with a gauge of underlying inflation marking its largest gain in 12 months, supporting views that price pressures will pick up this year.

Separate data also showed that the number of Americans filing for jobless benefits dropped last week to a 48-year low as the labor market strengthens.

According to the Commerce Department, consumer prices as measured by the personal consumption expenditures (PCE) price index increased 0.4 percent. That was the biggest growth since September and followed a 0.1 percent gain in December. The annual increase remains unchanged at 1.7 percent in January due to unfavorable base effects.

Excluding the volatile food and energy components, the PCE price index rose 0.3 percent in January - the largest gain since January 2017. The so-called core PCE price index climbed 0.2 percent in December. Base effects also kept the annual increase in the core PCE price index unchanged at 1.5 percent in January.

The combination of rising inflation and a robust labor market could force the Federal Reserve to hike interest rates a bit more aggressively this year than expected as it worries about the economy overheating. The U.S. central bank has forecast three rate hikes in 2018. The first rate increase is expected later this month.

The core PCE index is the Fed's preferred inflation measure and has undershot the central bank's 2 percent target since mid-2012.

Inflation is expected to increase toward its target this year also as a $1.5 trillion tax cut package and increased government spending spur faster economic growth. Rising commodity prices as well as a weakening U.S. dollar are also seen stoking inflation.

The dollar initially rose against a basket of currencies before paring gains to trade little changed. Prices for U.S. government bonds rose slightly while stocks on Wall Street dropped.