Inflation in the United States continues to lose momentum but is slowing. In January, the annual rate fell to 6.4% for the seventh straight month, according to data released Tuesday by the Bureau of Labor Statistics. This is the lowest level since October 2021, when it was 6.2%. However, this is just a tenth down from the 6.5% that ended 2022, showing the resistance of prices to moderating their gains.
Core inflation, which excludes food and energy, also fell by a tenth to 5.6%. Both headline and core interest rates are already very close, showing that returning to the 2% target set by the US Federal Reserve for price stability will not be easy. Jerome Powell, the Fed Governor, is determined to keep raising interest rates until demand shows signs of cooling enough to take the pressure off prices.
This Tuesday’s data came in slightly higher than expected by analysts, who were confident the annual rate would fall to 6.2%. The first half of 2022 saw the fastest price increases in the last four decades and year-on-year inflation can be expected to fall further in the coming months due to this base effect, excluding the worst months, and this gives hope to investors.
Monthly inflation was 0.5% in January. The housing index was by far the largest contributor, accounting for nearly half of the monthly gain for all items, with food, gasoline and natural gas indices also contributing. The food index rose 0.5% for the month, while the home food index rose 0.4%. The energy index was up 2% for the month as all major components of the energy index rose for the month. The fall in petrol and gas prices of previous months was reversed in January.
In the annual rate, however, groceries in the shopping basket rose by 11.3% and energy by 8.7%, which is mainly due to the rise in the price of electricity (11.9%) and gas (26.7%).
Powell has been trying for a year to achieve the US economy’s difficult soft landing, i.e. to control inflation without actually triggering a recession. After the Federal Reserve’s last meeting, he acknowledged that the disinflation process was underway but qualified that it had not spread to all sectors. The Federal Reserve Chair has repeatedly warned that he will not let go of his vigilance until prices are clearly under control. The labor market is still very tight, with an unemployment rate of 3.4%, the lowest in more than half a century, and this continues to pose a risk of inflation.
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