US consumer prices rose in January, leading to the biggest annual increase in inflation in 40 years, which could fuel financial markets speculation for a 50 basis points interest rate hike from the Federal Reserve next month.

The consumer price index gained 0.6% last month after increasing 0.6% in December, the Labor Department said today.

In the 12 months to January, the US consumer price index jumped 7.5%, the biggest year-on-year increase since February 1982.

That followed a 7% advance in December and marked the fourth month of annual increases in a row in excess of 6%. Economists polled by Reuters had forecast the CPI rising 0.5% and accelerating 7.3% on a year-on-year basis.

The US economy is grappling with high inflation, caused by a shift in spending to goods from services during the Covid-19 pandemic.

Trillions of dollars in pandemic relief fired up spending, which ran against capacity constraints as the coronavirus sidelined workers needed to produce and move goods to consumers.

Soaring inflation has reduced purchasing power for households and eroded President Joe Biden's popularity.

This is despite the economy growing at its strongest rate in 37 years in 2021 and the labor market rapidly churning out jobs.

US President Joe Biden said the January consumer price index report issued today was a reminder the budgets of Americans are under real strain, adding that his administration was using "every tool" it has to tackle the issue.

"We have been using every tool at our disposal, and while today is a reminder that Americans' budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge," Biden said in a statement.

Biden also said forecasters projected that inflation will ease by the end of 2022. The president added that his administration's policies had led to a decline in new unemployment claims, which he described as a sign of "real progress".

The Fed is expected to start raising rates in March, to rein in inflation, which has overshot the Fed's 2% target. Financial markets are predicting a 25% chance of a 50 basis points increase, according to CME's FedWatch tool.

Market predictions are partly driven by the fact that price pressures are broadening, with several measures of wage inflation increasing strongly in recent months.

Economists, however, believe it is unlikely that the Fed would move so aggressively.

They expect the Fed to raise rates by 25 basis points at least seven times this year.

Excluding the volatile food and energy components, the CPI increased 0.6% last month after rising 0.6% in December. In the 12 months to January, the so-called core CPI jumped 6%.

That was the largest year-on-year gain since August 1982 and followed a 5.5% advance in December.

Rising rentals and shortages of goods like cars are fueling the core CPI. Monthly inflation could slow in the coming months amid an easing in supply bottlenecks as coronavirus infections driven by the Omicron variant subside.

US government data this week showed goods imports increased to a record high in December as ships offloaded their cargo after months of delays because of labor shortages at ports. Wholesale motor vehicle inventories increased by the most in 10 years in December.

Still, inflation will remain high for a while, in part reflecting the delayed impact of rising wages. Employers are boosting compensation as they compete for scarce workers. There were 10.9 million job openings at the end of December.

A separate report from the Labor Department today showed initial claims for state unemployment benefits fell 16,000 to a seasonally adjusted 223,000 for the week ended February 5.

Economists had forecast 230,000 applications for the latest week. Claims increased from the beginning of January through the middle of the month as Omicron raged across the country.

They have dropped from a record high of 6.149 million in early April of 2020.