Consumer Prices in the US Surpass Expectations with January Increase.

US Consumer Prices Surpass Expectations in January Amidst Increases in Shelter and Healthcare Costs, But Fed Rate Cut Expectations Unchanged

The Bureau of Labor Statistics reported on Tuesday that the consumer price index (CPI) rose by 0.3% last month, following a 0.2% increase in December. Annually, the CPI increased by 3.1% through January, slightly lower than December’s 3.4% rise. Economists, however, anticipated a 0.2% monthly gain and a 2.9% year-on-year increase.

The BLS adjusted seasonal factors and weights used in calculating the CPI, potentially contributing to the stronger-than-expected readings, which analysts believe may be temporary. Financial markets predict the Federal Reserve will commence interest rate cuts in May or June, given ongoing concerns about the labor market and high services inflation.

Although significant progress has been made in curbing inflation, risks remain, including potential supply chain disruptions and the moderation of rent increases. The Fed has increased its policy rate by 525 basis points since March 2022 to the current range of 5.25% to 5.50%.

Excluding volatile food and energy components, the core CPI rose by 0.4% last month, with early-year price hikes contributing to the increase. The core CPI increased by 3.9% year-on-year in January, matching December’s rise.

While consumer prices remain high, indicators used by the Fed to track its 2% inflation target have shown improvement. The personal consumption expenditures (PCE) price index slowed to an annualized rate of 1.7% in the fourth quarter, down from 2.6% in the previous quarter. The core PCE price index remained steady at a 2.0% rate.

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