Inflation slows to 6.4%, but pressures remain
Unusually strong job market still a concern
WASHINGTON – The pace of consumer price increases eased again in January compared with a year earlier, the latest sign that the high inflation that has gripped Americans for nearly two years is slowing.
At the same time, Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain stubborn and are likely to fuel price spikes well into this year.
Consumer prices rose 6.4% in January from 12 months earlier, down from 6.5% in December. It was the seventh straight year-over-year slowdown and well below a recent peak of 9.1% in June. Yet it remains far above the Federal Reserve’s 2% annual inflation target.
And on a monthly basis, consumer prices increased 0.5% from December to January, much higher than the 0.1% rise from November to December. More expensive gas, food and clothing drove up inflation in January.
The Fed has aggressively raised its benchmark interest rate in the past year to its highest level in 15 years in its drive to get rampaging inflation under control. The Fed’s goal is to slow borrowing and spending, cool the pace of hiring and relieve the pressure many businesses feel to raise wages to find or keep workers. Businesses typically pass their higher labor costs on to their customers in the form of higher prices, thereby helping fuel inflation.
So far, most of the slowdown in inflation reflects freer-flowing supply chains
and earlier declines in gas prices. But the Fed’s rate hikes – eight since March of last year – have had no discernible effect on America’s job market, which remains exceptionally strong.
The unemployment rate has dropped to 3.4%, the lowest level in 53 years, and job openings remain high. The strength of the job market has, in turn, helped support consumer spending, which underpins the bulk of the U.S. economy.
Yet the flip side of healthier spending is that inflation may become harder to tame. Gas prices rose 2.4% in January, the government said, with prices averaging $3.50 a gallon nationwide by the end of last month.
Tuesday’s inflation report showed that food prices jumped 0.5% from December to January, defying hopes for a smaller increase. Cereals and bread products became costlier. And egg prices jumped 8.5% just in January and have skyrocketed 70% in the past year.
Excluding volatile food and energy costs, so-called “core” prices increased 0.4% last month, up from 0.3% in December. Compared with a year ago, core prices rose 5.6%, down just a tick from December’s 5.7%.
Behind much of the surge in core prices were rents and other housing costs. Rents jumped 0.7% in January, only slightly below December’s 0.8% rise. Housing costs have a significant impact on inflation, because they make up nearly four-tenths of the core consumer price measure.
Market rates for new rental leases have been easing since fall, and the Fed expects those lower costs to gradually feed into the government’s data as renters renew their leases. Once they do, those lower rents should help reduce inflation, though the impact might not appear until summer.
Health care services costs fell, and used car prices dropped 1.9%.