USA consumers said they expected to see the fastest wage growth in several years when polled in January, according to a monthly Federal Reserve Bank of NY survey. Inflation rose 2.1 percent from a year earlier and core prices increased 1.8 percent.
The Labor Department said its Consumer Price Index increased 0.5 percent last month as households paid more for gasoline, rental accommodation and healthcare.
The unexpected price increases are expected to take a toll on the stock market.
Inflation's consistent overshooting of the Bank of England's government mandated 2% target over the past year or so is one of the main drivers for the bank's recent assertions that it will likely raise interest rates faster, and to a greater extent than previously expected during 2018.
With vegetable prices declining in February, analysts believe consumer price index (CPI) inflation will be lower for February if the first-week trend continues. The year-on-year increase in the CPI was unchanged at 2.1 percent.
USA consumer prices rose considerably more than expected in January, stoking fears that inflation is about to turn dangerously higher. Excluding volatile food and energy prices, the index was up 0.3% against estimates of 0.2%.
Oxford Economics lead United Kingdom economist Martin Beck said: "A fall in annual CPI inflation last December to 3% from the previous month's 3.1% was only the second month in 2017 to see a decline in the CPI rate". It grew by 8.4 per cent during the month as compared to just 0.6 per cent in December 2016.
Food inflation softened to 4.58% in January from 4.85% a month ago. Petrol inflation from hovering at around 4.6% last December is down to 2% last month.
"Against this backdrop, the attention on the incoming monthly data will likely be on the inflation and trade deficit prints", the brokerage said in the report.
The Fed funds futures market, a barometer of how fast investors think the Fed will raise interest rates, ticked up after the consumer price data landed, said Quincy Krosby, chief market strategist at Prudential Financial.
United Kingdom manufacturers increased the prices they charged by 2.8%, less than the consensus forecast of 3% and the smallest increase since November 2016.
The average annual rate of change of the food sub-index for the 12-month period ending January 2018 over the previous 12-month averaged 19.62 per cent, or 0.07 per cent points from the average annual rate of change recorded in December 2017 (19.55) per cent.