Consumer prices jump much more than forecast, sparking inflation fears

U.S. consumer prices rose considerably more than expected in January, fueling fears that inflation as about to turn dangerously higher.

The Consumer Price Index rose 0.5 percent last month against projections of a 0.3 percent increase. Excluding volatile food and energy prices, the index was up 0.3 percent against estimates of 0.2 percent.

The Labor Department indicated that price pressures were "broad-based," with rises in gasoline, shelter, apparel, medical care and food.

Markets reacted quickly to the news, reversing earlier gains and indicating a lower open.

Headline CPI rose 2.1 percent on an annualized basis against expectations of 1.9 percent. Core CPI increased 1.8 percent vs. estimates of 1.7 percent.

Investors were watching the report closely after fears of surging inflation helped send the stock market lower and bond yields higher. A strong rise in inflation would send borrowing costs higher and could cut into corporate profits.

Federal Reserve policymakers have a goal of 2 percent inflation, which they believe is a sign that the economy is strong but not moving too quickly. The gauge is not the central bank's most closely watched measure — that would be the personal consumption expenditures index — but still could figure into decisions on interest rates.

Most individual measures with the CPI showed gains, with a spike in fuel oil of 9.5 percent and a gain of 5.7 percent in gasoline leading. Gasoline is up 8.5 percent over the past year while fuel oil has surged 22.5 percent.

Food prices rose 0.2 percent, with food away from home up 0.4 percent, its biggest gain in a year and part of a 2.5 percent annualized gain. Fruits and vegetables increased 0.5 percent, with fruit up 1.9 percent and vegetables down 1.2 percent.