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US consumer prices accelerated in January as Americans continued to be weighed down by rising housing and food prices, suggesting the Federal Reserve is far from pausing its rate hike campaign of interest.
The latest report from the US Department of Labor also showed that the pace of disinflation in annual measures of consumer prices slowed last month. Still, the continued gradual decline in inflation is likely to keep the Federal Reserve, Fed, on a path of moderate interest rate hikes.
The Consumer Price Index, CPI, rose 0.5% last month, after rising 0.1% in December. The 0.7% increase in the cost of housing, which mainly reflects rents, accounted for almost half of the monthly increase in the CPI.
Sticky inflation and persistent tightness in the labor market led several economists to anticipate that the US central bank could continue raising rates through the summer. “Inflation is easing, but the path to lower inflation will not be easy,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
“The Fed won’t make decisions based on a single report, but risks are clearly growing that inflation won’t cool fast enough for the Fed’s liking.”
Inflation was also boosted by higher gasoline prices, which rose 2.4% after falling for two months in a row. Americans also paid more for natural gas and electricity.
Other items on the rise were food, which rose 0.5% after advancing 0.4% in December. Food consumed at home increased by 0.4%, driven by higher prices for meat, fish and eggs. Cereal and bakery prices also rose, as did non-alcoholic beverages, although fruits and vegetables cost less.
The increase in the CPI in January was in line with the expectations of economists who indicated that part of the increase in the monthly CPI reflected the price increases at the beginning of the year.
“In the current environment of higher inflation, companies are likely to apply larger price increases when resetting their prices than they would normally apply when inflation was low and stable, leading seasonal factors to underestimate inflation in early year, when repricing is more common,” the Goldman Sachs economists wrote in a note.
In the 12 months to January, the CPI rose 6.4%, the smallest rise since October 2021, which followed a 6.5% rise in December. The 2022 CPI revisions explain the modest slowdown in CPI year-on-year.
with Reuters
