U.S. inflation rose to 3 percent in January, strengthening the case for the Federal Reserve to extend a pause on interest rate cuts. The Consumer Price Index (CPI) jumped more than expected, data from the Bureau of Labor Statistics showed on Wednesday, rising 0.5 percent from December. This marked the fastest monthly increase since August 2023.
Last month, the annual pace was 2.9 percent. The “core” CPI, which excludes volatile food and energy prices, also showed little improvement. It rose 0.4 percent from December or 3.3 percent on a year-over-year basis, both higher than economists expected.
January inflation complicates Fed’s strategy
The monthly increase in core prices was the highest since April 2023. The January data underscored the uneven nature of the central bank’s battle against high prices.
Inflation has subsided drastically since cresting just above 9 percent in 2022, but progress in recent months has been much more sporadic. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, described the latest inflation report as “sobering.” Goolsbee, who will cast an official vote on policy decisions this year, said he did not want to read too much into one inflation report, especially since it followed two months of more “encouraging” developments. He also noted that seasonal quirks were typical in January data but made clear that it was an unwelcome development.
December-to-January changes in several categories of the Consumer Price Index were notable:
– Used cars and trucks
– Motor vehicle insurance
– Meats, poultry, fish, and eggs
– Gasoline (all types)
– Piped utility gas service
– Medical care commodities
– Airline fares
– Nonalcoholic beverages
– Hospital services
– Motor vehicle maintenance and repair
– Tobacco and smoking products
– Dairy products
– Alcoholic beverages
– Rent of primary residence
– Food away from home
– Physicians’ services
– Electricity
– New vehicles
– Cereals and bakery products
– Fruits and vegetables
Goolsbee’s comments and the unexpected rise in inflation complicate the Federal Reserve’s approach to managing the economy. As the central bank navigates the delicate balance between fostering employment and controlling inflation, this latest report signals that challenges remain.
Image Credits: Photo by Glen Carrie on Unsplash
