After years of low inflation, signs that wage and price growth finally are heating up were a major factor in this month's financial market turbulence.
But the recovery from the Great Recession has seen these inflation flirtations before. And despite big January jumps in average hourly earnings and consumer prices, some experts aren't yet convinced that the U.S. economy is on the verge of significantly higher inflation.
"We need to be very careful about making assumptions on long-term trends from one month's data," said Mark Hamrick, senior economic analyst at financial information website Bankrate.com. "It remains to be seen whether an uptick in inflation overall can be sustained."
If it can, such a shift would change the calculus for how Americans handle their money.
Higher inflation would trigger rising interest rates that increase the costs of auto loans, credit card debt and other borrowing. At the same time, the return on savings, such as certificates of deposit, would improve.
In that environment, stocks would lose some of their attractiveness because there would be less of a difference in returns compared with safer investments. That's part of the reason why the major stock indexes tumbled early this month before recovering in recent days.
Low inflation is good in that it keeps costs down for food, clothing, gasoline, cellphone service, healthcare and other everyday expenses. If you own bonds, low inflation preserves the value of your investment.
Older Americans remember how high inflation plagued the U.S. economy in the 1970s and early 1980s, stunting economic growth. Some countries going through extreme economic turmoil, such as Brazil in the 1980s and early 1990s, even have experienced hyperinflation that caused prices for staples such as bread to skyrocket.
But persistently low inflation — or rather, what causes it — also can be a drag on the economy, as it has been since the Great Recession.
While low inflation makes goods and services more affordable, it usually signals that wage growth is weak, which ultimately deprives consumers of rising disposable income.
For those reasons, the Federal Reserve in 2012 set an explicit annual target of 2% inflation.
For most of the last decade, inflation has fallen below that level. Some recent government reports have indicated the trend is changing, which could lead the Fed to hike its benchmark short-term interest rate more quickly than planned to keep inflation from overshooting the target.
But the future path of inflation can be difficult to gauge.
There are several government measures of price and wage growth, and some have their own secondary measures. The personal consumption expenditures price index, which is the Fed's preferred measure, and the consumer price index both split off a separate core figure that excludes often-volatile food and energy costs.
The PCE price index, which is a broader look at inflation, increased 1.7% in the 12 months that ended Dec. 31, the most recent data available. That was down from 1.8% for the 12-month period that ended Nov. 30. The core figure for those periods was 1.5%.
The Labor Department reported Wednesday that the consumer price index jumped 0.5% in January, driven in large part by higher gas prices.
The increase was more than expected, but the annual inflation rate remained at 2.1%, the same as it was for the 12 months that ended Dec. 31. The annual core inflation rate for the CPI held steady last month at 1.8%.
The new data confirmed fears triggered by a Feb. 2 Labor Department report that set off the recent market downturn. That report showed that average hourly earnings in January surged 2.9% over the previous 12 months, the largest year-over-year gain since 2009.
But the wage data, like the CPI jump, were just for one month. Annual wage growth had increased 2.8% in mid-2016 but was unable to sustain that level. It hit 2.7% in early 2017 and again later fell back.
A better sense of any new trend will come when the next jobs report is released March 8, said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
"Wages are very important in the inflation outbreak story," he said. "We'll get a good chance to assess that in the next employment report."
But even sustained stronger wage growth won't translate immediately into higher overall inflation, said Ryan Sweet, director of monetary policy research for Moody's Analytics.
"Over time, stronger wage growth should put some upward pressure on inflation," he wrote in a research report last week. "Still, it takes time."
Economists would like to see wage growth of about 3.5% so that workers have a significant overall gain after accounting for higher prices.
But Wall Street anticipates that the wage and price gains will be enough for Fed officials to increase their benchmark interest rate again in March, pushing it up to a range between 1.5% and 1.75%. That's still historically low but higher than the unprecedented, near-zero level that the Fed maintained from late 2008 to 2015.
"We've been warning for some time that we probably have seen the lowest of the low with respect to interest rates," Hamrick said. "Then we need to accept and understand the risk of rising rates."
People with large credit card balances should consider paying down — and ultimately paying off — that debt, he said. The average annual rate for new credit cards is up about 1 percentage point over the last year to 16.4%, according to Bankrate's CreditCards.com website. It's likely to rise more in the coming months.
CD rates also have been slowly increasing, with more hikes expected. The average interest rate on a one-year CD is 0.69%, up from 0.51% a year ago, according to the DepositAccounts website run by LendingTree.
Inflation reduces the value of existing bonds, while higher interest rates make new bonds more attractive. Still, investors need to have some stocks in their portfolio if inflation is increasing, said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, which provides services to advisors who aren't affiliated with large banks.
"Inflation is a force that's going to eat away at your money," he said.
Because stocks should rise over time, they provide some protection from rising inflation, Zaccarelli said. Stocks that do better when interest rates are rising are those in commodities and materials companies, he said. Utilities and consumer staples companies don't perform as well in those environments.
"I do think we are in a rising inflation regime right now, so it does mean paying attention to investments," Zaccarelli said.