January CPI Rises 6.4%, as Fed Chair Jerome Powell Warns of More Rate Increases
By The Consumer Price Index (CPI) – a closely watched measure of inflation – rose 6.4% in January compared to the same month one year ago, according to the latest report released Tuesday morning by the U.S. Labor Department.[0] This marked the seventh straight month of cooling in annual inflation since peaking at 9.1% in June, the highest reading since 1981.[1] The inflation rate in January was substantially greater than the average of 2.1% over the three years before the outbreak of the pandemic.[1]
Month-to-month inflation ticked up 0.5%, after dropping in December, according to the report.[2] Core CPI, a measure which excludes volatile food and energy prices, rose 5.6% year-over-year, and 0.4% higher on a month-to-month view.[3]
Shelter costs, or rent prices, were “by far” the largest contributor to the monthly increase, accounting for nearly half of the uptick, while prices for food, gasoline and natural gas also fueled the outsized gains.[3] Prices for eggs soared 70% compared to a year ago, and flour prices jumped 20%.[4] The cost of energy increased by 2% from the previous month, and was 8.7% higher[5]
In less than a year, the Federal Reserve has drastically increased borrowing costs from almost nothing to a target range of 4.5% to 4.75% in order to combat rising inflation.[6] At its last policy meeting, the Federal Reserve (Fed) announced a rate hike of just 25 basis points. However, Chairman Jerome Powell has cautioned that rates may have to stay higher for longer due to data indicating a robust labor market.[6]
Last week, Federal Reserve chairman Jerome Powell stated that he did not believe that the expectation that the situation would go away quickly and without pain was at all guaranteed.[7] I anticipate it will take some time before we have achieved our goal, and thus, we must continue to implement rate increases and assess whether we have done enough.[8]
Jerome Powell, the Chair of the Federal Reserve, has identified that shelter inflation, which is a more persistent part of the Consumer Price Index and has not dropped significantly, is a key factor in deciding the direction of interest rates.[8] During an interview held in Washington, D.C. last week, Powell predicted that housing inflation would decrease in the mid-year.[9]
0. “Consumer prices rise at faster pace in January” Axios, 14 Feb. 2023, https://www.axios.com/2023/02/14/cpi-january-inflation-report-2023
1. “January CPI Report Shows Annual Inflation Cooled” The Wall Street Journal, 14 Feb. 2023, https://www.wsj.com/articles/us-inflation-january-2023-consumer-price-index-f080e30b
2. “Inflation is higher than expected at 6.4%, with the ‘most important' measure remaining elevated” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/inflation-higher-than-expected-in-january.html
3. “Inflation Fell To 6.4% In January—But Is Still Worse Than Economists Expected As Rent, Food And Gas Prices Keep Rising” Forbes, 14 Feb. 2023, https://www.forbes.com/sites/jonathanponciano/2023/02/14/inflation-spiked-64-in-january-worse-than-economists-expected-as-rent-food-and-gas-prices-keep-rising
4. “Food inflation is still running double digits – watch these stocks for pricing power” Seeking Alpha, 14 Feb. 2023, https://seekingalpha.com/news/3935716-food-inflation-is-still-running-in-the-double-digits-watch-these-stocks-for-pricing-power
5. “CPI Inflation Comes In Hot, Keeping Fed On Guard” Investor's Business Daily, 14 Feb. 2023, https://www.investors.com/news/economy/cpi-inflation-comes-in-hot-keeping-fed-on-guard-sp-500
6. “U.S. inflation slowed slightly in January – Labor Department By Investing.com” Investing.com, 14 Feb. 2023, https://www.investing.com/news/economic-indicators/us-inflation-slowed-slightly-in-january–labor-department-3002904
7. “Inflation eased again in January – but there's a cautionary sign” NPR, 14 Feb. 2023, https://www.npr.org/2023/02/14/1156542026/inflation-prices-recession-economy-federal-reserve
8. “January inflation hit 6.4%, missing analysts' expectations for a faster slowdown” NBC News, 14 Feb. 2023, https://www.nbcnews.com/business/economy/inflation-rate-january-2023-what-it-means-will-interest-rates-go-up-rcna70401
9. “Inflation rises 0.5% over last month in January, most since October” Yahoo Canada Finance, 14 Feb. 2023, https://ca.finance.yahoo.com/news/january-consumer-prices-inflation-data-cpi-february-14-123544672.html
