CPI Surges 0.5% in January, Raising Questions for Fed Chair Powell

The Consumer Price Index (CPI) rose 0.5% in January, faster than projections of 0.4%, according to the Bureau of Labor Statistics (BLS).[0] The index rose 6.4% on a yearly basis, decreasing slightly from 6.5% in December and surpassing expectations of 6.2%.[1] This was the smallest year-over-year increase since October 2021.[2]

Shelter costs were among the biggest contributors to the overall index, rising 0.7% from the prior month and 7.9% from a year ago.[3] Rent prices have risen to a new high of 8%.[4] The rise was also due to the cost of food, fuel, and natural gas.[5]

Core inflation, with the exclusion of volatile food and energy prices, remained at 0.4 percent in January, the same as in December.[6]

Many have taken the deceleration in interest rate increases as an indication that inflation may have peaked.[7] However, January’s CPI and a surprisingly resilient jobs report for last month show the challenges the Fed faces to reach its 2% inflation target.[7]

Federal Reserve Chair Jerome Powell has hinted that disinflation is underway, but the Fed chairman also says there is still a long way to go to reach the central bank’s desired 2.0% inflation rate.[3]

The latest read presents more challenges for Powell who has previously acknowledged that disinflation has begun. He has said that the process is likely to take quite a bit of time, and the Fed will have to do more rate increases and hold policy at a restrictive stance for a period of time.[8]

Industrial Production data from the United States is due to be released today.[9] Economists anticipate January’s rate to be an increase of 0.5% month-over-month, compared to the prior figure of -0.7% month-[10]

It’s one reason Powell has said he intends to keep interest rates higher until inflation gets closer to that 2% target. Powell aims to decrease economic demand and put a downward pressure on prices by keeping interest rates at a high level, making borrowing and investing more expensive.[4]

He suggested that the Federal Reserve and Chairman Powell are likely to continue raising rates. Markets are anticipating two additional rate hikes of 25 basis points each at the March and May meetings of the Federal Open Market Committee (FOMC).[8]

0. “Consumer prices rise at faster pace in January” Axios, 14 Feb. 2023, https://www.axios.com/2023/02/14/cpi-january-inflation-report-2023

1. “Grocery Inflation Slows in January, but Remains High” TIME, 14 Feb. 2023, https://time.com/6255258/inflation-grocery-prices-rise

2. “Consumer Prices Rose More Than Expected in January” Investopedia, 14 Feb. 2023, https://www.investopedia.com/consumer-prices-rose-more-than-expected-in-january-2023-7109395

3. “Inflation rose 0.5% in January, more than expected and up 6.4% from a year ago” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/consumer-price-index-january-2023-.html

4. “January inflation hits 6.4%, missing analysts’ expectations for a faster slowdown” Yahoo! Voices, 14 Feb. 2023, https://www.yahoo.com/now/january-inflation-hits-6-4-155759720.html

5. “January CPI Report Shows Sticky Inflation Is Back” Morningstar, 14 Feb. 2023, https://www.morningstar.com/articles/1137589/january-cpi-report-shows-sticky-inflation-is-back

6. “Inflation eased again in January – but there’s a cautionary sign” MPR News, 14 Feb. 2023, https://www.mprnews.org/story/2023/02/14/npr-inflation-prices-recession-economy-federal-reserve

7. “Inflation eases in January but economists project a bumpy road ahead to reach the Federal Reserve’s 2% target” Fox Business, 14 Feb. 2023, https://www.foxbusiness.com/personal-finance/january-cpi-inflation-eases-federal-reserve-rate-hike

8. “January CPI Report: What the Experts Are Saying About Inflation” Kiplinger’s Personal Finance, 14 Feb. 2023, https://www.kiplinger.com/investing/january-cpi-report-what-the-experts-are-saying-about-inflation

9. “Stocks Plunge Before The Open As Sticky U.S. Inflation Sparks Rate Worries, U.S. Retail Sales Data In Focus” Barchart, 15 Feb. 2023, https://www.barchart.com/story/news/14218794/stocks-plunge-before-the-open-as-sticky-u-s-inflation-sparks-rate-worries-u-s-retail-sales-data-in-focus

10. “Inflation in January was both hot and cold: Morning Brief” Yahoo News, 15 Feb. 2023, https://news.yahoo.com/inflation-in-january-was-both-hot-and-cold-morning-brief-110032297.html