The annual rate of inflation continues to moderate, the U.S. Bureau of Labor Statistics announced Tuesday, but inflation remains significantly elevated and the pace of easing may not be fast enough to prevent the Federal Reserve from clamping down even tighter on the U.S. economy.
Consumer prices rose 0.5% in January on a monthly basis, while the 12-month inflation rate was 6.4%, the Bureau said.
Housing costs, which rose by 0.7% on the month and 7.9% on the year, played a significant role in the results, providing about half of the inflationary boost during the month. Energy (up 2% monthly and 8.7% annually) and food prices (up 0.5% monthly and 10.1% annually) also rose sharply.
The price of eggs saw a particularly large jump, rising 8.5% in January and 70% over the last year to $4.82 a dozen on average – more expensive than a pound of ground beef or a gallon of gasoline.
Core inflation – a measure closely watched by the Fed that leaves out volatile food and energy prices – rose 0.4% monthly and 5.6% from a year ago, with the annual rate continuing a downward trend that began in September. However, both numbers were higher than the expectations of 0.3% and 5.5% respectively.
What the experts are saying: The numbers provide ammunition for both inflation hawks and inflation doves. The latter will note that the 12-month rate of 6.4% was down from 6.5% the month before, continuing a string of reductions in the inflation rate since the peak of 9.1% was recorded in June.
“Inflation in America is continuing to come down, which is good news for families and businesses across the country,” President Joe Biden said in a statement. “Today’s data confirm that annual inflation has fallen for seven straight months.”
Analysts at Bank of America said the report did little to change their outlook. “In our view, there is not a lot of new information in this report,” they wrote in a research note. “Today's report did not drastically alter the risks around the policy outlook.”
Inflation hawks, meanwhile, are focused on the fact that the annual inflation rate remains well above the Fed’s target of 2%, while the monthly rate of 0.5% in January increased sharply from the 0.1% monthly rate recorded in December, suggesting that the path ahead for could be uneven at best, with no guarantees that inflation will be brought under control anytime soon.
“Inflation remained searingly hot in January, which is bad news for consumers,” wrote Diane Swonk, chief economist at KPMG. “The Fed has not yet beaten inflation. Brace for at least two more rate hikes.”