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US inflation, more stubborn than expected, fell slightly to 3.1% in January

US inflation, more stubborn than expected, fell slightly to 3.1% in January


Key Takeaways The year-on-year inflation rate fell to 3.1% in January, the lowest since June. Inflation is proving more stubborn than experts predicted: forecasts were forecasting a rate of 2.9%. The Federal Reserve is waiting for data to show that high inflation is completely defeated before cutting its benchmark interest rate, which keeps rates high on all types of loans.

The high inflation of recent years continues its bumpy return to earth.

The cost of living, as measured by the consumer price index, rose 3.1% on the year in January, up from 3.4% in December and the lowest since June, it said Tuesday. the Bureau of Labor Statistics. Annual inflation was higher than the 2.9% rate forecasters expected, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.

Gasoline prices fell in January from December on a seasonally adjusted basis, helping to lower the overall inflation rate despite sharp increases in the food and housing sectors. The price of food products increased by 0.4% from December to January, the largest monthly increase in a year. “Core” inflation, which excludes food and energy prices, fell slightly to 3.9% for the year, where forecasters had predicted it would fall to 3.7%. which suggests that price increases remain more persistent than expected.

The data showed that the downward trajectory of high inflation that has rattled household budgets and the economy since mid-2021, and which peaked at 9.1% in June 2022, is still unstable. The Federal Reserve hopes this high inflation will be clearly defeated before cutting its benchmark interest rate, which it has kept at a 22-year high to combat inflation.

Stubborn inflation data complicates the Fed's fight against inflation and could delay the timing of possible rate cuts. The central bank tries to strike a balance with its key interest rate, which influences borrowing costs for all types of loans. High rates slow the economy and lower inflation by discouraging borrowing and spending, but risk causing a recession.

Fed officials said they wanted to be sure inflation was on track to reach an annual rate of 2% before cutting the federal funds rate from its current 23-year high, where it has been since July. And concerns about a recession and mass layoffs have faded recently, as U.S. economic output and the labor market have shrugged off high interest rates and defied expectations of a major slowdown.

“This 'very poor' inflation report for January, along with resilient US economic growth in the first quarter, must be concerning to the Fed and calls into question market expectations for aggressive and early rate cuts this year” , said Scott Anderson, Managing Director of the Fed. US economist at BMO Capital Markets, wrote in a commentary.

Market expectations that the Fed would begin cutting interest rates fell after the release of the CPI numbers. Market participants estimated there was only a 39% chance the Fed would start cutting rates at its May policy meeting, down from a 57% chance before the release, according to CME Group's FedWatch tool, which forecasts interest rate movements based on federal funds futures contracts. commercial data.

“We still expect inflation to slow toward the Fed's target and expect cuts to begin by mid-year, but today's data shakes markets out of their complacency about how quickly the rate cut cycle could progress,” Elyse Ausenbaugh, Global Investment Strategist at JP Morgan Global Wealth Management, said in a commentary.

Major U.S. stock indexes were all down more than 1% by late morning Tuesday, while the yield on the 10-year Treasury note jumped to a two-month high above 4.25%.

The Biden administration, which has been quick to highlight progress in fighting inflation in recent months, said the worse-than-expected report did not necessarily indicate inflation was heading in the wrong direction again . Two-thirds of January's inflation came from housing, and measures of housing costs that are more recent than government data, such as Zillow's Observed Rent Index, show that rent increases are slowing significantly since 2022. Consumer price index data should catch up sooner or later, a White House economic adviser said.

“We don't expect disinflation to proceed in a straight line,” Daniel Hornung, deputy director of the National Economic Council at the White House, said in an interview. “You would expect ups and downs. But I don't think it fundamentally changes the picture of disinflation that we're seeing.”

UPDATE: This article was updated after initial publication to include a chart of Consumer Price Index price increases and comments from an economist, an investment strategist and a White House economic advisor.




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