An inflation indicator closely watched by the Federal Reserve cooled further on an annual basis in January. This is the latest sign that price increases are coming back under control, even as the economy continues to weaken.
The price index for personal consumption expenditures rose 2.4 percent last month compared to a year earlier. This corresponded to economists’ forecasts and was below the December figure of 2.6 percent.
After stripping out food and fuel costs, which can fluctuate from month to month, a “core” price index rose 2.8 percent from January 2022. This followed a figure of 2.9 percent in December.
Still, the closely watched core metric rose faster on a monthly basis: It rose 0.4 percent, faster than the 0.1 percent mark in December. This was the largest increase since January 2023, as service prices continued to rise rapidly.
Overall, the data provides further evidence that while inflation continues to fall, the road back to normality could remain at least somewhat bumpy.
Fed officials are targeting a 2 percent price increase, so today’s inflation rate remains elevated. Still, it is well below its peak in 2022. In their economic forecasts in December, central bankers predicted that inflation would cool to 2.4 percent by the end of the year.
“They probably won’t get too upset about a single print,” said Omair Sharif, founder of Inflation Insights, but he noted that policymakers would likely pay attention to the fixed monthly inflation reading. “This is obviously going in the wrong direction.”
Policymakers’ next meeting is March 19-20, and the latest inflation data could influence how they think about the economy. Policymakers are likely to take this report alongside a more recent measure of inflation, the consumer price index, due to be released on March 12.
Authorities were recently able to scale back their campaign to slow the economy as price increases quickly eased.
Fed officials have already raised interest rates to a range of 5.25 percent to 5.5 percent in early 2022, a significant increase from near zero. However, they skipped a final rate hike they had previously predicted for 2023 and signaled they could cut rates several times this year.
Investors are now wondering how quickly these rate cuts could come and how quickly they will be implemented. But Fed officials have taken a wait-and-see approach, fearful of declaring victory before inflation is finally stamped out.
“While we have seen great progress toward our goals, the journey is not over,” John C. Williams, president of the powerful Federal Reserve Bank of New York, said in a speech this week. But he said there are risks on both sides.
“Inflation could surprise on the upside, or consumer strength – a key driver of the robust growth we saw in 2023 – could weaken faster than I expected,” he said.
Mr. Sharif noted that while there has been a lot of excitement in recent months about inflation falling sharply on a six-month basis, the latest report reinforces the Fed’s case for caution. It shows that the number is “now trending in the opposite direction”.
Thursday’s report also included a new reading on consumer spending, suggesting that consumers spent less last month when adjusted for inflation.
At the same time, a measure of personal income rose more than expected, partly due to rising dividend income. Such gains as price increases ease could give shoppers more money to spend this year.
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2024-02-29 14:14:02
www.nytimes.com
