Consumer prices rose more than expected in January and started the year with a disappointing inflation report, which might delay interest rate cuts by the Federal Reserve.
The Consumer Price Index rose 3.1% compared to a year earlier, down from 3.4% in December, the Labor Department reported on Tuesday. January’s CPI report showed an increase of 0.3% compared to a month earlier, which was higher than the 0.2% increase forecasted by most economists.
Inflation has been cooling down considerably compared to the peak of 9.1% in June of 2022, which was the highest in four decades when the economy was still emerging from the pandemic. In 2023 prices started to stabilize as a result of falling energy prices. 2023 closed with a dramatically lower increase of only 3.4%, from the last 12 months.
January’s inflation numbers might lead to the Fed to delay cutting interest rates later than expected. The trend of the last 6 months had led many economists to conclude that inflation had been defeated for good, but January’s disappointing numbers put all of that into question. Now, economists speculate that a Fed rate cut in March is unlikely and that even a cut at the next meeting, in May, might not happen.
The core CPI index, which excludes food and energy, due to their volatility, stayed unchanged at a 3.9% from a year earlier, the same rate that was reported a month earlier. This means that prices remain unchanged. January’s core CPI rose 0.4% from a month earlier, higher than the 0.2% expected by economists, setting some pessimism on the short-term front.
Most of the rise in the CPI report was due to high shelter and services, a trend that has been going on for a few months.
“This CPI report is a story of the shelter component, “said Russell T Price, the chief economist at Ameriprise. He said that it represents 35% of the headline CPI and 44% of the core CPI and added that Shelter was almost entirely responsible for the stronger-than-expected inflation in January. But he said he is confident it will decelerate in the months ahead.
“Everyone has a job, everyone has money,” said Jason Schenker, the chief economist at Prestige Economics LLC, TX. Those are signs of a good economy, he said. On the other hand, “There are almost no homes for sale and there is very little for rent. That is keeping the shelter cost up with very high interest rates, which in turn slows construction activity.”
The US is in good shape and other numbers support this. Unemployment numbers were better than expected in January. There were 353,000 jobs added into the economy. This was double the expectations. That combined with wage growth indicated a healthy economy.
