People shop at a hardware store in Brooklyn on January 25, 2024.
Spencer Platt | Getty Images News | Getty Images
Inflation fell in January and consumer purchasing power increased as price pressures for U.S. goods and services continued to ease.
The consumer price index, a key indicator of inflation, rose 3.1% in January from a year earlier, the U.S. Labor Department said Tuesday. That’s down from 3.4% in December.
The CPI measures how quickly prices change for everything in the U.S. economy, from fruits and vegetables to haircuts, concert tickets and household appliances.
While this overall downward trend is encouraging, there were some “disappointments” beneath the surface as inflation rose from December to January in categories such as housing, food, electricity and airfares, said Mark Zandi, chief economist at Moody’s Analytics.
Ultimately, it is likely just a “short detour” from the overall disinflationary trend that is unlikely to move in a completely straight line, he added.
“You see zigzags and zags in all of this data, and that was just a zag,” Zandi said. “The conclusion: Inflation continues to moderate. It’s still uncomfortably high – even though it’s moving in the right direction. And aside from today’s data detour, all trend lines still look good.”
Workers’ paychecks can buy more
Inflation has fallen significantly since its pandemic-era peak of 9.1% in June 2022. At the time, the average consumer’s paycheck couldn’t keep up with rapidly rising prices. Their so-called “real income” – income after accounting for inflation – was negative for more than two years.
This dynamic has reversed: employees’ hourly wages have been above the inflation rate since May. In other words, you can buy more with your wages. Real average hourly wages rose 1.4% between January 2023 and January 2024, the Labor Department said Tuesday.
Normalization of inflation means consumers will not need to draw down their “excess savings” to support spending, according to a recent outlook from JP Morgan’s Global Investment Strategy Group.
Consumer sentiment rose 13% in January to its highest level since July 2021, reflecting “improving prospects for both inflation and personal incomes,” according to the University of Michigan.
Where inflation was high in January
Cartons of orange juice are displayed at a grocery store in Los Angeles.
Mario Tama | Getty Images
Despite widespread disinflation, there are certain categories in which inflation remains relatively high.
According to the Labor Department, “notable” categories include automobile insurance (the cost of which rose 20.6% last year), leisure (2.8%), personal care (5.3%) and medical care (1st). ,1 %).
Prices for car insurance and car repairs, for example, have risen rapidly, albeit with a lag, following an earlier increase in the prices of new and used cars during the pandemic period.
Additionally, housing inflation has increased by 6% over the past 12 months. Housing makes up the largest portion of the average household budget, and stubbornly high inflation in this category has supported overall inflation readings.
Economists expect housing inflation to moderate on the back of encouraging signs such as: B. the weakening of national prices for newly signed rental contracts, a trend that is usually only reflected in broader inflation data after months.
“Everything points to this happening,” Zandi said. “The delay is longer than I expected.”
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Other categories have declined significantly.
Food inflation, for example, has fallen to 1.2% over the past 12 months, from a peak of around 13.5% in August 2022. However, some categories – such as frozen juices and still drinks, sugar and beefsteaks – remain elevated . Their prices increased by 29%, 7.2% and 10.7%, respectively.
Sugar prices, for example, will be affected by “ongoing shortages and availability issues” in 2023, said Amy Smith, an economist at Advanced Economic Solutions.
Sugar is an important component of juices and drinks, among other things; The latter were also affected by bad weather in Brazil and Florida, which reduced orange production and caused frozen concentrated orange juice futures to rise to an all-time high in November, Smith said. And beef production fell nearly 5% in 2023, partly due to the impact of severe drought on rangelands, she added.
Meanwhile, overall energy costs have fallen or fallen by 4.6% over the past year, with the cost of gasoline falling by 6.4%, natural gas by 17.8% and heating oil by 14.2%.
Why inflation skyrocketed in the pandemic era
Inflation initially rose sharply in early 2021 as the US economy restarted after the Covid-19-related shutdown.
During the pandemic, consumer demand for home goods skyrocketed as people spent more time at home and were unable to spend on travel and other experiences. Goods production has not been able to keep up with high demand given supply chains in disarray.
It was a “double whammy” that sent prices “skyrocketing,” according to Jay Bryson, chief economist at Wells Fargo Economics.
Supply chains and consumer demand for goods have now largely normalized, Bryson said.
Inflation in the “services” side of the economy — the intangible things we consume, like concerts, car repairs and vet visits — is also declining but remains high, he said. A big reason for this is wage growth, as labor is a major cost for service companies, economists say.
Business demand for workers rose to a record high as the economy reopened, and wage growth reached its highest level in decades as workers had ample influence over the labor market. That growth has since slowed as the labor market has cooled from red-hot levels, reducing services inflation pressures, but remains high, economists say.
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2024-02-13 15:43:33
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