January CPI Report: Inflation Remains Well Above Fed Target

The Consumer Price Index (CPI), a closely watched measure of inflation, increased 6.4% in January compared to the same month one year ago, according to the Bureau of Labor Statistics.[0] This marks the seventh consecutive month of cooling inflation since peaking at 9.1% in June of 2021, the highest reading since 1981.[1] Core inflation, which excludes volatile food and energy prices, rose 5.6% year-over-year.[2] In the fourth quarter of 2021, both overall and core inflation rose at the slowest rate seen on an annual basis.[3]

The January CPI report reveals that prices rose 0.5% between December and January — the fastest one-month gain since October of last year.[4] Shelter costs, which includes rent and the cost of homeownership, increased 7.9%, the fastest annualized rate since 1982.[5] Rent saw an 8% increase, setting a new record.[6] Food prices were up 10.1% in January from a year ago and tracked 0.5% higher from December.[7] The prices of used cars have been a hindrance to inflation, dropping 8.8% in the last year and an additional 1.9% in January.[8]

With the January CPI report, inflation remains well above the Federal Reserve’s target of 2%. Fed chair Jerome Powell warned that rates may need to stay higher for longer given data showing resilient labor market strength.[2] Powell said last week that “the disinflationary process has begun” but cautioned it would likely be 2024 before inflation returns to the Fed’s target rate of 2%.[9] Since last March, the Federal Reserve has increased interest rates by 4.5 percentage points in an attempt to combat inflation.[10] Federal policymakers have suggested that they may increase the rate by another 0.5 percentage points through two additional hikes in the near future.[8]

Many economists believe inflation has reached its highest point.[6] Despite the 6.4% rate being higher than the 2% that the Federal Reserve wishes to promote due to their mandate of stable prices and a low unemployment rate, it is still well above that rate. As the Fed and Powell continue to raise rates in order to cool the economy and bring down prices, investors will be watching to see if the rate hikes are enough to return inflation to its target level.

0. “S&P 500 in choppy action as signs of sticky inflation push Treasury yields higher By Investing.com” Investing.com, 14 Feb. 2023, https://www.investing.com/news/stock-market-news/sp-500-in-choppy-action-as-signs-of-sticky-inflation-push-treasury-yields-higher-3003192

1. “Annual Inflation Cooled Slightly in January as Pace of Moderation Levels Off” The Wall Street Journal, 14 Feb. 2023, https://www.wsj.com/articles/us-inflation-january-2023-consumer-price-index-f080e30b

2. “Inflation is higher than expected at 6.4%, with the ‘most important’ measure remaining elevated” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/inflation-higher-than-expected-in-january.html

3. “Inflation surged 6.4% in January, higher than expected” New York Post , 14 Feb. 2023, https://nypost.com/2023/02/14/inflation-surged-6-4-in-january-higher-than-expected/

4. “January inflation comes in higher than expected” WAVY.com, 14 Feb. 2023, https://www.wavy.com/news/national/annual-inflation-rose-6-4-percent-in-january-cpi/

5. “January inflation breakdown: Where are prices rising the fastest?” Fox Business, 14 Feb. 2023, https://www.foxbusiness.com/markets/inflation-breakdown-prices-for-everyday-items

6. “January inflation hit 6.4%, missing analysts’ expectations for a faster slowdown” NBC News, 14 Feb. 2023, https://www.nbcnews.com/business/economy/inflation-rate-january-2023-what-it-means-will-interest-rates-go-up-rcna70401

7. “Grocery prices remain higher in January, led by eggs and citrus” Yahoo News, 14 Feb. 2023, https://news.yahoo.com/grocery-prices-remain-higher-in-january-led-by-eggs-and-citrus-152442563.html

8. “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

9. “US CPI climbed 6.4% in January as inflation is still high” Business Insider, 14 Feb. 2023, https://www.businessinsider.com/how-high-is-inflation-cpi-report-january-price-growth-2023-2

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