February 15, 2023 (MLN): Rising rent and gasoline prices in the US are contributing to continued elevated consumer prices in January, signaling that the battle against inflation is far from over for policymakers. While the consumer price index (CPI) has eased from decades-high levels, it remains significantly above policymakers' target of 2%, as APP reported.
In January, the CPI rose 6.4% from a year ago, a touch below December's figure, but still indicating that the Federal Reserve has more work to do in lowering costs.
Shelter was the largest contributor to the monthly increase, accounting for nearly half of the rise in all items. Other contributors included food, gasoline, and natural gas. Excluding volatile food and energy components, the so-called core CPI rose 5.6% from January 2022, which is also the smallest increase in around a year.
President Joe Biden acknowledged that more work needs to be done to transition to more steady, stable growth and that there could be setbacks along the way. However, he also expressed optimism, stating that the latest data "reinforces that we have made historic progress and are on the right track, and now we need to finish the job."
While higher interest rates may typically be associated with an uptick in unemployment and demand slowdown, the economy's resilience lends hope to the possibility that the United States can avoid a major downturn. However, the slow grind down in inflation only supports the higher-for-longer view on interest rates, according to Rubeela Farooqi of High-Frequency Economics.
Fed officials will likely continue to lift rates and keep policy restrictive for some time, she warned.
The supply chain stress and energy prices can impact monthly numbers, and some stickier components such as rents will be important to watch. Rental costs are not expected to peak until the second half of this year, while wage growth remains robust and there is still pent-up demand for services spending. A strong labor market supports incomes and, in turn, demand.
Overall, while there are a few bright spots, such as the very modest 1.5% increase in gasoline prices, many gains made from savings on gas are having to be spent elsewhere. Food prices were still around 10% higher in January than a year ago, and electricity costs were up 11.9%.
Policymakers have more work to do to bring inflation down towards their goal, and it is likely to be necessary to further tighten monetary policy, cautioned Fed Governor Michelle Bowman. Fed President John Williams added that "subdued growth" will likely be needed to bring inflation down, and the Fed would "stay the course until our job is done."
Copyright Mettis Link News
Posted on: 2023-02-15T10:51:21+05:00
