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Inflation pressures raising expectations for rate hikes

WASHINGTON (AP)  Inflation pressures appear to be building in the U.S. economy, a prospect that is heightening anxiety about potentially higher borrowing rates that could slow economic growth.    

The latest source of concern was a report Wednesday that showed a key measure of inflation rising in January by the sharpest rate in a year. The increase was led by higher prices for clothing, housing and auto insurance.

Some economists cautioned, though, that some of those price increases are tied to temporary factors and might not signify sustained inflation.

At the same time, the government reported that Americans cut back on their retail spending in January, leading some analysts to downgrade their forecasts for economic growth in the January-March quarter.

For now, prices aren't rising fast enough to cause pain for many consumers. Even modestly higher inflation, though, could lead the Federal Reserve to more quickly raise short-term interest rates. That could lead to higher borrowing costs for individuals and businesses.

If individuals have to pay more for a home loan or if businesses have to absorb higher lending rates in order to expand, then borrowing and spending will typically slow. And often, so does the economy.

Wednesday's data makes it more likely that the Fed will raise rates four times this year, economists said, rather than the three increases that Fed policymakers had forecast in December. Most analysts expect the Fed to resume raising rates in March. It most recently did so in December.

"Inflation pressures are perking up in the U.S. economy," said Leslie Preston, senior economist at TD Ameritrade. "Inflation has been the missing piece in the puzzle for rate hikes over the past several months."

A closely watched barometer of "core" U.S. consumer prices, which excludes the volatile categories of food and energy, rose 0.3 percent from December to January, the Labor Department said Wednesday. That was the sharpest monthly increase since January 2017. 

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