The United States' consumer inflation rate decreased last month but stayed high, which is the most recent indication that the price spike caused by the epidemic is only sporadically and slowly abating.
(Photo : by Scott Olson/Getty Images)The United States' consumer inflation rate decreased last month but stayed high, which is the most recent indication that the price spike caused by the epidemic is only sporadically and slowly abating.
According to the Labor Department's report released on Tuesday, there was a rise in the consumer price index from 0.2% to 0.3% between December and January. The price increase from a year earlier is 3.1%.
That is much less than the 9.1% inflation high in mid-2022 and less than the 3.4% number from December. Nonetheless, at a time when popular dissatisfaction with inflation has turned into a key issue in President Joe Biden's reelection campaign, the most recent figure is still much higher than the Federal Reserve's 2% goal level.
The study released on Tuesday demonstrated a significant change in the sources of inflation from goods-such as groceries, used vehicles, and gasoline-which are currently either declining in price or growing much more slowly, to services-such as lodging, dining out, and medical care. The Fed may be concerned about this change since services inflation usually takes longer to decline.
Fed Chair Jerome Powell expressed worry about the ongoing high cost of services during his most recent news conference. He also said that before beginning to lower the main interest rate, the central bank's officials would prefer to see services inflation decrease much further.
Stock and bond prices plunged on Tuesday as a result of the surprisingly sticky inflation statistics, and financial markets now predict that the Fed will lower rates for the first time in June rather than May or March as many had previously predicted. Early afternoon trade saw the S&P 500 lose about 1.2%, while the rate on the 10-year Treasury note sharply increased to 4.28%.
Biden Administration's Response and Future Inflation Trends
In response to Tuesday's announcement, representatives of the Biden administration stated that average hourly wage increased in January and is now 1.4% more than it was a year ago, after accounting for inflation. However, because some companies have cut employee hours, the average workweek has decreased, meaning that weekly inflation-adjusted income is somewhat less than it was a year ago.
A few experts issued a warning against overinterpreting the inflation statistics from January, pointing out that many businesses raise their prices in January, giving the numbers a short-term boost. Although it doesn't always succeed, the government tries to seasonally adjust the statistics to account for such patterns.
In fact, a plethora of data points to more cooling inflation in the future. There is less of a need for businesses to raise prices to cover increased labor expenses because the rate of pay growth has moderated. Additionally, polls indicate that both consumers and company owners anticipate less inflation in the upcoming months and years, a tendency that may help to restrain price rises.
According to the government, the average national gas price fell 3.3% between December and January. However, the average price has increased so far this month; as of Tuesday, it was up 15 cents to $3.23 a gallon, according to AAA.
While food costs are up just 1.2% from a year ago, grocery prices increased by 0.4% between December and January, the largest increase in a year.
However, the price of services like as car insurance, rent for apartments, and tickets to concerts is still going up faster than it was prior to the epidemic, which is maintaining the chronically high level of total inflation. When compared to a year ago, the average cost of auto insurance has increased by more than 20%.
Many customers are getting heartburn from these price increases. Atlanta resident Bill Milligan said he was shocked to learn last month that the price of insuring one of his automobiles had increased by about 30% from six months prior.
The mixed data that was presented on Tuesday will probably make Fed officials even more cautious. They have said that while they are happy with the progress made in substantially lowering inflation, they need more proof before they can be certain that it will eventually return to their 2% objective. From its 22-year high of about 5.4%, the majority of analysts continue to predict that the Fed will begin reducing its rate in June.
Housing expenditures, especially the cost of house ownership, have been another factor contributing to high prices. It increased by 0.6% in January compared to December, the largest one-month increase since April. In comparison to a year ago, that metric has increased by 6.2%.
But in the upcoming months, housing expenses ought to decline. With the completion of new apartment complexes, the cost of new apartment leases has been gradually going down. The government's data may not reflect the new lease price decline for several months.
