US January Inflation Report: Consumer Price Increases Slowed Slightly
The latest inflation numbers show another slowdown compared with a year ago, but the monthly figures picked back up in January, clouding the picture.
Inflation cooled very slightly on an annual basis for a seventh straight month in January, narrowly continuing a deceleration that has come as supply chains have healed and prices have increased more slowly or even declined across an array of goods. But the details of the report offered reasons for concern.
Consumer Price Index data released on Tuesday showed that price increases picked up briskly on a monthly basis last month. That was true across both key measures: the one that includes gas and groceries, and a “core” index that strips out those products because of their month-to-month volatility to get a better sense of the underlying inflation trend.
The price index was up 6.4 percent in January compared with a year earlier. That was a very slight slowdown from 6.5 percent in December, and is down notably from a peak of about 9 percent last summer. Compared with the previous month, prices climbed 0.4 percent after stripping out groceries and fuel to get a sense of the underlying inflation trend — a rapid pace of growth that matched the increase in December.
The combination underlines that while the Federal Reserve has been receiving positive news on inflation — price increases are no longer relentlessly accelerating, the way they did for much of 2021 and the first half of 2022 — it could be a long and bumpy road back to normal.
“There has been an expectation that it will go away quickly and painlessly — and I don’t think that’s at all guaranteed,” Jerome H. Powell, the Fed chair, said at an event last week.
Much of the inflation slowdown in recent months has come from a moderation in price increases for goods and commodities. After stripping those out, services inflation — which includes health care, restaurant meals, pedicures and other non-goods purchases — has remained unusually rapid and has shown little sign of slowing down.
Officials at the Fed have been closely watching to see whether those service price increases can decelerate, betting that it will probably be necessary to drive them lower in order to return inflation to the 2 percent that they aim for on average and over time. Central bankers define their inflation goal using a related but more delayed inflation measure.
Policymakers are worried that it could be challenging to wrestle inflation back to normal at a moment when the labor market is so strong, in part because companies may charge more as they pay more to compete for a limited pool of workers. Wages are a major 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 rapid, though they have begun to slow.
How strong inflation and the overall economy prove in the coming months will influence how high Fed policymakers ultimately lift interest rates and how long they keep them elevated. Central bankers have lifted their main policy rate from near-zero to more than 4.5 percent in less than a year, and have forecast that they will climb slightly above 5 percent.
“The base case for me is that it will take some time, and we’ll have to do more rate increases, and then we’ll have to look around and see whether we’ve done enough,” Mr. Powell said last week.
Food price growth ticked back up, putting a burden on consumers.
Food prices grew over the month, ticking up slightly compared from December. A price index for meats, poultry, fish and eggs increased in January.
Food prices grew over the month, ticking up slightly compared from December. A price index for meats, poultry, fish and eggs increased in January.Credit…Casey Steffens for The New York Times
Monthly growth in food prices accelerated slightly in January, reversing a gradual decline seen in recent months, as the price of eggs, cookies and citrus fruits all rose.
Food prices grew 0.5 over the month, ticking up slightly compared with an increase of 0.4 percent in December. A price index for meats, poultry, fish and eggs increased in January, as did another for cereals and bakery products. An overall index for fruits and vegetables fell from the previous month, while an index for dairy products was unchanged.
The price of eggs was up 8.5 percent from the previous month, the Bureau of Labor Statistics said, as an outbreak of avian influenza around the United States continues to cause egg prices to surge. However, other measures, like a market report compiled by the Agriculture Department, show that the price of eggs has been dropping sharply in recent months. The average price of large eggs dropped from more than $5 a carton earlier this year to less than $3 in February, the department said.
On an annual basis, the food index was up 10.1 percent. The price of food at restaurants rose 0.6 percent from the previous month, outpacing 0.4 percent monthly growth in the price of groceries.
Rising food prices have been one of the most painful and visible aspects of inflation for many households, which have had to cut back on purchasing pricier items at the grocery store.
Tyson Food Inc. reported earlier this month that its profits fell in the first quarter as consumers cut back on purchasing its products, especially more expensive items like beef and pork. And Unilever, which makes Dove soap and Hellman’s mayonnaise, has said that it will need to continue raising prices this year to pass on its own increasing costs to consumers.
But key costs for farmers like fuel and transportation have retreated from highs last year, helping to lessen some of the price pressures in the food sector. A food price index created by the United Nations declined for its tenth consecutive month in January, after reaching an all-time high last March.
Still, food prices remain uncomfortably high for many consumers, especially lower-income people who spend a greater share of their money on food. Many parts of the Western United States continue to experience extreme drought, which has reduced supplies and pushed up prices for products like alfalfa hay, an important feed for livestock and dairy cows.
— Ana Swanson
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Markets waver as investors parse a mixed report.
Investors flinched following government data on Tuesday that showed a mixed picture for inflation, which has been cooling since late last year.
Having risen ahead of the data release, futures on the S&P 500, which allow investors to bet on the index before markets officially open, initially moved sharply lower before recovering to trade roughly flat for the day. Similarly, U.S. government bond yields initially rose, before falling slightly.
Investors have taken solace in recent months from a consistent slowing in inflation, helping push the benchmark U.S. stock index up more than 6 percent in January. The prospect of a continued drop in the pace of price rises had raised hopes that the Federal Reserve would soon end its campaign of raising interest rates, which tends to lower inflation but also raise borrowing costs for consumers and companies.
Such exuberance has come under pressure in recent weeks, with the S&P 500 inching just 1.4 percent higher this month, ahead of the latest release of the Consumer Price Index. The data for January is expected to show price increases picking up again on a monthly basis, although the year-over-year numbers are likely to continue showing a slowdown in inflation.
“It’s difficult to overstate the relevance of Tuesday’s C.P.I. data as a potential inflection point,” analysts at BMO Capital Markets noted in a report ahead of the data release, adding that the “trend of moderating inflation” would be “put to the test on Tuesday.”
Already, a robust jobs market, rising used-car prices and upward revisions to past inflation numbers had complicated the picture for inflation.
At the same time, policymakers have reignited expectations that the Fed would continue raising rates until the middle of the year, pushing up U.S. government bond yields and weighing on stock prices.
The yield on the two-year Treasury bond has risen roughly 0.25 percentage points so far this month — equal to the size of a typical rate increase from the central bank. And the persistent weakening of the U.S. dollar, when compared to a basket of currencies representing its major trading partners, had paused this month. On Tuesday, the dollar eased as much as 0.7 percent following the fresh numbers.
“If you ask 10 people what they think inflation will do, you will get 12 opinions with cogent arguments back,” said Jim Sarni, a managing director at asset manager Payden & Rygel, who maintains that inflation may have peaked even if the pace of its moderation slows and there are occasional monthly “blips.”
“Last year, we had too much pessimism, but right now, we have a market that has got ahead of itself and is a little too optimistic,” he said. “Markets are vulnerable in the short-run for that reason.”