US inflation hits 0.3% in January, Fed still expected to cut interest rates this year

US consumer prices rose more than expected in January amid rising shelter and health care costs, but that likely will not change expectations that the Federal Reserve will start cutting interest rates in the first half of 2024.

The Consumer Price Index rose 0.3 percent last month after rising 0.2 percent in December, the Bureau of Labor Statistics said Tuesday. Annual revisions to CPI data published last Friday were mixed, but generally showed that inflation was on a downward trend after rising in 2022.

In the 12 months to January, the CPI rose 3.1 per cent, after rising 3.4 per cent in December. Economists polled by Reuters had expected the consumer price index to rise 0.2 percent on a monthly basis and 2.9 percent on an annual basis. The annual increase in consumer prices has declined from its peak of 9.1 percent in June 2022.

The Bureau of Labor Statistics has updated seasonality factors, the model it uses to exclude seasonal fluctuations from the data. The new weights, which saw the share of housing rise and the share of new and used cars fall, were used to calculate CPI data for January.

That may partly explain the stronger-than-expected readings, which economists said were likely temporary.

Policymakers are in no rush to lower interest rates

Financial markets expect the US central bank to start cutting interest rates in May, although some economists are gravitating towards June, given the still tight labor market and continued high services inflation.

Policymakers said they were in no rush to start cutting borrowing costs and wanted convincing evidence that inflation was on a sustainable slow path.

Although significant progress has been made, risks remain, including the potential for renewed supply chain problems due to shipping disruptions in the Red Sea and drought in the Panama Canal. However, inflation expectations remain fairly favorable, as rent increases are expected to ease this year.

Since March 2022, the Fed has raised interest rates by 525 basis points to the current range of 5.25 percent to 5.50 percent.

Excluding the volatile food and energy components, the CPI rose 0.4 percent last month after a 0.3 percent increase in December. In addition to rents, price increases at the beginning of the year are also likely responsible for the rise in the so-called core CPI.

The core CPI rose 3.9 percent year-on-year in January, which is consistent with the increase recorded in December.

Although consumer prices remain high, the measures taken by the US central bank to achieve the 2 percent inflation target have improved significantly. The increase in the personal consumption expenditures price index slowed to an annual rate of 1.7 percent in the fourth quarter, from a pace of 2.6 percent in the July-September quarter. The core personal consumption expenditures price index rose 2.0 percent, unchanged from the third quarter.

(tags for translation)Inflation rates

Leave a Reply

Your email address will not be published. Required fields are marked *