In contrast to expectations for 0.3% and 5.5%, the core CPI grew 0.4% monthly and 5.6% from a year ago when volatile food and energy were excluded.
A comprehensive selection of everyday products and services are included in the consumer price index, which increased 0.5% in January for a 6.4% annual rise. The Dow Jones survey of economists had predicted gains of 0.4% and 6.2%, respectively.
According to a study released on Tuesday by the Labor Department, inflation increased to begin 2023 as consumers felt the effects of rising gasoline, gas, and housing prices.
The Bureau of Labor Statistics stated in the study that rising housing expenses were responsible for roughly half of the monthly rise. The component, which makes up more than one-third of the index, increased 0.7% month over month and 7.9% year over year.
Food expenditures increased by 0.5% and by 10.1%, while energy costs increased by 2% and 8.7%, respectively.
In a separate BLS data, average hourly earnings were down 1.8% from a year ago and down 0.2% for the month.
Despite a recent slowdown in price growth, January’s numbers indicate that inflation is still a force in a U.S. economy that is in risk of entering a recession this year.
The rate of inflation is decreasing, but getting there won’t be easy, according to Jeffrey Roach, chief economist at LPL Financial.
Jerome Powell, the chairman of the Federal Reserve, has spoken recently about the “disinflationary” dynamics at play, but January’s figures suggest the central bank still has work to do.
Seasonally adjusted pricing showed a 0.7% decline in medical care services, a 2.1% decline in airline rates, and a 1.9% decline in used automobile costs.
Even while it is commonly anticipated that these figures would slow down later in the year, the increase in property prices is keeping a floor under inflation.
Because of this, Powell and other Fed officials claim that while deciding on the direction of policy, they are paying closer attention to core services inflation minus housing prices, or “super core.” That figure increased 0.2% in January and was up 4% from the previous month.
Markets anticipate that the Fed will increase its overnight lending rate from its current target range of 4.5%-4.75% over its two next sessions in March and May. If inflation does not moderate, rate increases may become more frequent.
Retail sales, which are released on Wednesday at 8:30 a.m., will be the following significant data point.
Maria Vassalou, co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management, stated that “the strength of core inflation signals that the Fed has a lot more work to do to get inflation down to 2%.” The Fed may have to raise its funds rate goal to 5.5% in order to contain inflation if retail sales tomorrow also climb.
However, following a somewhat robust end to 2022, the Atlanta Fed’s most recent tracking data estimates first-quarter GDP growth at 2.2%.
It will take some time to study January’s CPI statistics because the BLS altered the way it calculates the index. While certain factors, like housing, were given heavier weightings, others, like food and energy now have a little smaller impact.
The Fed also altered how it calculates a crucial factor known as owners’ equivalent rent, which is a gauge of how much property owners would earn if they rented instead of selling.