Inflation rose more than expected in January as stubbornly high housing prices weighed on consumers, the Labor Department reported Tuesday.
The consumer price index, a broad measure of the prices buyers pay for goods and services across the economy, rose 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, this was 3.1%, compared to 3.4% in December.
Economists surveyed by Dow Jones had expected a monthly increase of 0.2% and an annual increase of 2.9%.
Excluding fluctuating food and energy prices, the so-called core CPI rose 0.4% in January, 3.9% higher than a year ago, unchanged from December. The forecast was 0.3% and 3.7% respectively.
Most of the increase came from accommodation prices, which account for about a third of the CPI weight. The index for this category rose 0.6% for the month, accounting for more than two-thirds of the overall increase, the BLS said. On a 12-month basis, accommodation increased 6%.
Food prices also rose 0.4% month-on-month. Energy helped offset some of the increase, which fell 0.9%, largely due to a 3.3% decline in gasoline prices.
After the release, stock market futures fell sharply. Futures tied to the Dow Jones Industrial Average lost more than 250 points and Treasury yields jumped.
Despite the price increase, inflation-adjusted profits rose 0.3% for the month. However, adjusted for the decline in average weekly working hours, real weekly earnings fell by 0.3%. The real average hourly wage rose by 1.4% compared to the previous year.
“Inflation is generally moving in the right direction,” said Lisa Sturtevant, chief economist at Bright MLS. “However, it is important to remember that a lower inflation rate does not mean that prices for most things are falling – it just means that prices are rising more slowly. Consumers are still feeling the pressure of higher prices on the things they buy most often.”
The release comes as Federal Reserve officials try to set the right balance for monetary policy in 2024. Although financial markets have been looking for aggressive rate cuts, policymakers have been more cautious in their public statements, focusing on the need to let the data be their guide rather than preconceived expectations.
Fed officials expect inflation to fall back to its annual target of 2% because they expect housing prices to fall throughout the year. The January hike could be problematic for a central bank looking to take its foot off the brake and shift monetary policy to the most restrictive in more than two decades.
“The highly anticipated CPI report is a disappointment to those who had expected inflation to fall slightly, allowing the Fed to start cutting rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “The numbers were overall higher than expected, ensuring the Fed needs more data before embarking on a rate-cutting cycle.”
In general, inflation data was encouraging, although annual interest rates remain well above the Fed’s 2 percent target. Additionally, core inflation, which officials say is a better indicator of long-term trends, remained even more stubborn as housing costs remained higher than expected.
In recent days, policymakers including Chairman Jerome Powell have said the overall strength of the U.S. economy gives the Fed more time to process data and not worry about high interest rates slowing growth.
Market prices ahead of the consumer price index release pointed to a trend toward the first rate cut in May, with a total of five quarter percentage points lower by the end of 2024, according to CME Group. However, several Fed officials have said they believe two or three rate cuts are more likely.
Aside from the rise in housing costs, the rest of the inflation picture was mixed.
Used car prices fell 3.4%, clothing costs fell 0.7% and medical supplies costs fell 0.6%. Electricity costs rose 1.2% and airfares rose 1.4%. At the grocery store, ham prices fell 3.1% and egg prices rose 3.4%.
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2024-02-13 14:39:19
www.cnbc.com
