The Bureau of Labor Statistics reported an overall 0.5% rise in the Consumer Price Index (CPI) for January, in line with consensus estimates, for its fastest month-over-month reading since October 2022. This increase in the inflation rate was mainly led by a rise in shelter prices, which contributed nearly half of the overall increase in consumer prices. Food, gasoline, and natural gas prices also contributed to the inflation rate.
Just a few days ago, the Labor Department revealed that the Consumer Price Index (CPI), which tracks the prices paid by consumers, rose 0.5% in January, its biggest increase in three months. Inflation for the year was higher than anticipated, clocking in at 6.4%. Excluding volatile food and energy prices, the Core Consumer Price Index rose by 0.4% in January, higher than the 0.3% price increase seen in December.
Since last March, the Federal Reserve has increased interest rates by 4.5 percentage points in order to contain inflation. It is anticipated that Federal policymakers will implement two additional rate hikes, amounting to 0.5 percent, in the near future. Data from CME Group suggests that markets anticipate the Federal Reserve to raise interest rates a few more times during this year, bringing the “terminal,” rate to a range of 5.25%-5.5%, up from the current 4.5%-4.75%.
The stalling of interest rate increases has mainly been regarded as an indication that the market's inflation troubles may be over. However, January's CPI and a surprisingly resilient jobs report for last month show the challenges the Fed faces to reach its 2% inflation target. Curt Long, chief economist, National Association of Federally-Insured Credit Unions, said: “The January CPI report adds to doubts that inflation is truly on a path back to the Federal Reserve's target. In conjunction with the blowout jobs report in January, this further augments recent assertions from the FOMC for sustained tightening over the coming spring, increasing the potential of an acceleration in the size of individual hikes as well as the terminal, rate. Credit unions should anticipate the fed funds rate clearing 5%, with no rate cuts in 2023.”
In addition, much of the attention hasn’t been on the January CPI report itself but on the picture painted by routine revisions to 2022's inflation data.
0. “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
1. “January CPI Report Shows Sticky Inflation Is Back” Morningstar, 14 Feb. 2023, https://www.morningstar.com/articles/1137589/january-cpi-report-shows-sticky-inflation-is-back
2. “Wholesale inflation surges 0.7% in January, more than expected as high prices persist” Fox Business, 16 Feb. 2023, https://www.foxbusiness.com/economy/wholesale-inflation-surges-january-more-expected-high-prices-persist
3. “Consumer prices rise at faster pace in January” Axios, 14 Feb. 2023, https://www.axios.com/2023/02/14/cpi-january-inflation-report-2023
4. “January CPI Report: What the Experts Are Saying About Inflation” Kiplinger's Personal Finance, 14 Feb. 2023, https://www.kiplinger.com/investing/january-cpi-report-what-the-experts-are-saying-about-inflation
5. “Inflation eases in January but economists project a bumpy road ahead to reach the Federal Reserve's 2% target” Fox Business, 14 Feb. 2023, https://www.foxbusiness.com/personal-finance/january-cpi-inflation-eases-federal-reserve-rate-hike