+5.6% excluding
food and energy
+5.6%
excluding
food and
energy
+5.6%
excluding
food and
energy
Inflation cooled very slightly on an annualized basis for a seventh consecutive month in January, continuing a slowdown that has occurred as supply chains have healed and goods prices have moderated, but the details of the report offer reasons for concern.
Consumer price index data released on Tuesday showed price increases rose sharply on a monthly basis. That was true of both key measures: the one that includes gas and groceries, and a “core” index that strips out those items because of their month-to-month volatility to get a better sense of the underlying inflation trend.
The price index rose 6.4 percent in January compared to a year earlier. That was a slight slowdown from December’s 6.5 percent, and a notable drop from last summer’s peak of 9 percent. But compared with the previous month, prices rose 0.4 percent after removing groceries and fuel, a fast pace of growth that matched December’s increase.
The overall report shows that while the Federal Reserve has received positive news on inflation, price increases are no longer accelerating relentlessly, as they did for much of 2021 and the first half of 2022. be a long and bumpy road back to the 2 percent annual inflation gains that were once normal.
“We’re certainly off the peak of last year’s inflationary pressures, but we’re lingering at a high pace,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “The road back to 2 percent will take some time.”
More expensive hotels, auto insurance and vehicle repairs and a steady and rapid rise in rental costs are some of the factors that helped keep inflation numbers high in January. Goods, including used cars and women’s clothing, fell in price on a monthly basis, but even the slowdown in some physical goods was less pronounced than it had been. Price increases for clothing in general accelerated, for example.
Today’s data underscores that price pressures remain stubborn and that inflation is not fading quickly and smoothly, something Fed officials have repeatedly warned against.
“There has been an expectation that it will go away quickly and painlessly, and I don’t think it’s guaranteed at all,” Fed Chairman Jerome H. Powell said at an event last week.
Central banks have been waiting for the ongoing cooling in price increases to become more widespread. Much of the deceleration in inflation in recent months comes from a moderation in the price increases of goods and raw materials. After stripping them out, inflation in services, which includes health care, restaurant meals, pedicures and other non-goods purchases, has remained unusually fast and has shown little sign of slowing.
This trend continued in January, and prices for services excluding energy continued to rise rapidly, in part due to rising rental and other housing costs. A measure that Mr. Powell watches closely, which tracks services after removing housing, in addition to food and gas, decreased slightly last month.
Rental inflation is expected to slow in the coming months as a recent pullback in rent demand for newly rented apartments slowly shows up in official inflation data. But it is uncertain to what extent, and for how long, the rent increases will fade.
“It’s a little unclear what the underlying impetus is for the shelter,” said Sonia Meskin, head of U.S. macro at BNY Mellon Investment Management, explaining that strong job gains and solid wage growth could keep the pressures on in the market. “Shelter tends to be associated with a tight labor market.”
Fed officials have been watching closely to see if increases in service prices can slow, betting that they will likely need to be cut to return inflation to the 2 percent they aim for on average and over time. Central banks define their inflation target using a related but more lagged measure of inflation.
Policymakers worry that it could be a challenge to return inflation to normal at a time when the labor market is so strong, in part because companies can charge more as they pay more to compete for a limited pool of workers. Wages are a significant cost of doing business for many service providers.
Employers added more than half a million jobs in January, an unexpectedly robust number, and gains in average hourly earnings and other pay trackers remain brisk, although they have begun to slow.
The strength of inflation and the broader economy in the coming months will influence how Fed policymakers end up raising interest rates and how long they keep them high. Central banks have lifted their main policy rate from near zero to more than 4.5 percent in less than a year and have forecast they will rise slightly above 5 percent.
“The bottom line for me is that it’s going to take some time and we’re going to have to do more rate increases, and then we’re going to have to look around and see if we’ve done enough,” Mr. Powell last week. .
For now, mounting evidence suggests that inflation is not fading as quickly as economists had expected even a month or two ago, said Jason Furman, a Harvard University economist and former economic adviser to the administration. obama
“The inflation picture that had started to look better a month ago, it turns out that a lot of that was probably a false dawn,” Furman said. “The whole outlook we have on inflation is much worse.”
