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The variation of the price index in the North American country in January continued its downward trend with respect to previous months. Inflation is going in the right direction. The question is how quickly and steadily it will decline until it reaches the US Federal Reserve’s (Fed) 2% target.
That consumer prices in the United States rose 6.4% in January 2023 compared to the same month last year is not a surprise for the market, but it does bring some relief.
The good news: The number is down from December’s 6.5%, representing a significant drop from June’s peak of more than 9% and marking the eighth month of slowdown. The bad: It’s not enough for the Federal Reserve to moderate its policy.
The summer inflation spike put the market on edge and led the Central Bank to the most aggressive consecutive rate hike in decades.
Rates started 2022 at just over 1% and ended at almost 5%, within the framework of a strategy to cool consumption and, incidentally, inflation. However, the rise in prices has not slowed down at the rate that is needed.
The enthusiasm for lower prices runs out when it comes to interest rates. The rhetoric of the Central Bank of the United States remains the same: rates will continue to rise as long as inflation does not reach the target of 2% per year.
A Reuters survey of 68 market agents reveals that more than half expect at least two more hikes in the coming months, with the consequences that these decisions bring about access to credit and the economy in general.
For the sample: Tesla raises the price of its cars
Perhaps more important than the headline inflation figure is what specific data shows on the prices of certain services, from haircuts to plane tickets.
The costs of these services have remained stubbornly high even as they have begun to fall elsewhere. According to the report to January, the price of used vehicles is the only item that falls, with 11.6%, although the price of new ones continues to rise with 5.8%.
In the latter, the situation does not look better. Although its cars qualify for $7,500 in federal tax credits, luxury automaker Tesla raised its prices for the fourth time so far this year.
Other items in the family basket appear more resistant to the Fed’s measures to cool the economy. For example, the price of food had a year-on-year rise of 10.1% in January and that of fuel oil (a type of gasoline) jumped 27.7%.
With Reuters and AP
