WASHINGTON: US consumer prices accelerated in January, but the annual increase was the smallest since late 2021, pointing to a continued slowdown in inflation and likely keeping the Federal Reserve on a more moderate interest-rate path.
The Consumer Price Index (CPI) increased 0.5% last month after gaining 0.1% in December, the Labor Department said on Tuesday. The year-on-year rise was 6.4%, down from 6.5% the month before.
Monthly inflation was boosted in part by rising gasoline prices, which increased 3.6% in January, according to data from the Energy Information Administration.
Economists polled by Reuters had forecast the CPI climbing 0.5%. Much of the survey was conducted before the department’s Bureau of Labor Statistics (BLS) published annual revisions to the seasonally adjusted CPI data on Friday. The BLS also updated the seasonal adjustment factors, the model that it uses to strip out seasonal fluctuations from the data.
Spending weights used to calculate the CPI were also updated effective with the January report. The new weights, which were published on Friday, reflect consumer spending in 2021.
Housing’s share of the CPI has now been raised, but weights for transport and food were lowered. The revisions, updated seasonal factors and new weights prompted some economists to bump up their CPI forecasts.
Nevertheless, inflation is slowing, which would allow the Fed to continue with its reduced pace of rate hikes at its next meeting on March 21 and 22.
The annualised rate of 6.4% in January was the smallest gain since October 2021. The CPI peaked at 9.1% in June, which was the biggest increase since November 1981.
The moderation in price pressures reflects tighter monetary policy, which is weighing on demand, as well as improved supply chains. But it will be a while before inflation moves back to the Fed’s 2% target because of sticky rents and a tight labour market, which are keeping prices for services elevated.
The US central bank has raised its policy rate by 450 basis points since last March from near zero to a range of 4.50% to 4.75% range, with the bulk of the increases between May and December. Economists now believe the Fed could lift this rate above the 5.1% peak it projected in December and keep it there for some time.
Excluding the volatile food and energy components, the CPI increased 0.4% after rising 0.4% in December. In the 12 months through January, the so-called core CPI gained 5.6% after rising 5.7% in December.
