What this week’s inflation news means for consumers

By Sabrina Karl

It’s been a busy week for economic data releases, with all eyes on the metrics measuring inflation. Unfortunately for borrowers, the news was not great.

Once a month, two key indexes are released to compare prices from the previous month and year, indicating current inflation levels. The more widely recognized is the Consumer Price Index, or CPI, and its January data was released Tuesday.

Economists’ CPI predictions were for a 0.4% increase over December, and a 6.2% increase over last January. Instead, the readings came in for 0.5% and 6.4%.

While that may seem like a minor difference, the main point is the direction of the discrepancy, and that it means January inflation ran hotter than expected, all at a time when markets are hoping for signs of easing inflation.

Also released this week was January’s Producer Price Index, or PPI, which measures prices at the wholesale level. It too came in higher than forecasted, with economists expecting a 0.4% January increase and instead seeing the index rise 0.7%.

So what does this mean for consumers beyond the obvious confirmation that everyday prices are still rising? The bigger take-away is that these stronger-than-expected inflation reports may push the Fed to raise 2023 interest rates higher than previously forecasted, or keep them elevated for longer, or both.

When the Fed raises rates, as it has done aggressively since March, it’s good news for those with savings in the bank. But the sword cuts both ways, directly impacting rates on credit card debt, auto loans, and personal loans, making that debt more expensive.

Also, while the Fed does not directly drive mortgage rates, there is certainly some impact, and the fact that inflation is not yet easing as much as desired is certainly one variable that’s been pushing mortgage rates higher.