Topline
Annual inflation in January fell for a seventh straight month but prices still rose more than economists projected since December—signaling inflation may take longer than previously thought to come down, as the Federal Reserve decides how aggressively it should raise interest rates in order to tame prices.
Cartons of eggs are seen for sale in a Kroger grocery store in Houston, Texas.
Key Facts
Consumer prices rose 6.4% on an annual basis, according to data released by the Labor Department on Tuesday, coming in hotter than economist expectations of 6.2% but lower than the 6.5% spike in December.
Prices also jumped 0.5% on a month-to-month basis, breaking a three-month streak of improvements after December’s reading marked the largest decline in monthly inflation since the height of pandemic uncertainty in April 2020.
According to the government, the index for shelter, or rent prices, was “by far” the largest contributor to the monthly increase, accounting for nearly half of the uptick, while prices for food and gas also fueled the outsized gains.
On the bright side, core inflation, which excludes volatile food and energy prices, rose 5.6% over the last 12 months—its smallest increase since December 2021—as prices for used cars, medical care and airplane tickets all fell month-to-month.
Key Background
Amid record consumer spending and crippling supply chain constraints, inflation skyrocketed to a 40-year high of 9.1% in June—pushing the Fed to embark on its most aggressive economic tightening campaign in decades. With the central bank’s rate hikes slowing down the economy, many experts have argued the Fed could be risking an unnecessary recession, but others aren’t so sure inflation has slowed enough. The latest data comes after Fed Chair Jerome Powell earlier this month dashed hopes that the central bank would soon pivot from its aggressive inflation-fighting policy, saying at a press conference officials have “more work to do” before declaring victory and will need to keep the economy on a below-potential growth path for a while longer to help inflation settle at the historical target of 2%.
What To Watch For
The Fed’s next interest rate announcement is slated for March 22. Goldman Sachs economists project the central bank will deliver quarter-point hikes at its next two meetings and then hold top interest rates at 5.25%, the highest level since 2007, for the rest of the year. However, they note fewer hikes might be needed if weak business confidence hurts the labor market too much, while more might be needed if the economy—or inflation—reaccelerates too quickly.
Further Reading
Inflation Fell 0.1% In December (Forbes)
Source: 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/