USA TODAY International Edition
Inflation slows, but monthly rate rises
Economist predicts annual increase will fall to 2.3% by end of 2023
Inflation eased for the seventh straight month in January, helped by lower costs for used vehicles and offering some relief to consumers struggling with high prices over the past year.
Consumer price index data released on Tuesday showed that prices for a range of goods and services rose by 6.4% over the past 12 months, down slightly from an annual rate of 6.5% in December and a 40- year high of 9.1% in June.
On a month- by- month basis, however, prices increased by 0.5% in January compared with a slower gain of 0.1% in December. The acceleration was driven by shelter costs.
Americans have been struggling with soaring prices since last year, resulting in a decline in the real value of their income despite historic wage increases. High inflation has also amplified the risk of a recession.
The inflation data follows last month’s surprisingly strong labor report, which showed that employers added 517,000 jobs, well above expectations and raising concerns that the economy remains too hot and could keep prices at elevated levels for too long.
The latest index news “underscores the challenges faced by the Fed,” said John Leer, chief economist at Morning Consult. “Inflation may have peaked, but it’s not showing signs of rapidly returning” to the Fed’s 2% inflation target.
To get there, the Fed will likely have to continue hiking rates higher and longer than many anticipated.
Core consumer price index, a measure of inflation that strips away volatile food and energy prices, rose by 0.4% for the second month in a row. That put the annual core index inflation rate at 5.6%.
Gregory Daco, chief economist at EY, said the rise in core consumer price index last month isn’t “cause for concern” since the big jump in shelter prices could mean there will be smaller increases in coming months.
Daco predicts annual inflation will fall to 2.3% by the end of the year. Core inflation, he predicts, will fall to 2.8% by then.
Rising shelter costs were the biggest contributor to rising inflation last month and year, accounting for half of the 0.5% monthly increase in prices and 60% of the 6.4% annual inflation rate, the Labor Department said. Shelter costs rose by 0.7% last month and are up 7.9% from a year ago.
“Shelter’s contribution to inflation is likely to slow in the coming months,” Leer said.