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Consumer Prices Rise

Prices paid by U.S. consumers rose more than anticipated in January, Yahoo Finance reports.

What’s going on: “The Consumer Price Index (CPI) rose 0.3% over last month and 3.1% over the prior year in January, slightly higher than December’s 0.2% month-over-month increase but a deceleration from December’s [seasonally adjusted 3.3%] annual gain. Both measures were higher compared to economist forecasts of a 0.2% month-over-month increase and a 2.9% annual increase, according to data from Bloomberg.”

  • Core CPI—which excludes more volatile food and gas costs—in January increased 0.4% over the prior month and 3.9% year-over-year.

The details: Prices rose in January for transportation services (up 1.0%), medical care services (up 0.7%) and shelter (up 0.6%), according to the Bureau of Labor Statistics.

  • Prices declined, however, for used cars and trucks (down 3.4%), apparel (down 0.7%), medical care commodities (down 0.6%) and household furnishings and supplies (down 0.1%).
  • New vehicle costs were flat for the month.

Why it’s important: “Financial markets anticipate that the U.S. central bank will start cutting interest rates in May” or June, according to Reuters. “Policymakers have said they are in no hurry to start lowering borrowing costs and want convincing evidence that inflation is on a sustained slow path.”

The last word: Indeed, January consumer prices data “puts the Federal Reserve in a tight spot,” said NAM Chief Economist Chad Moutray. “The Federal Open Market Committee will keep interest rates more elevated than desired in its pursuit of slowing inflation. At the same time, it would like to normalize rates at some point, particularly given its desire to navigate a ‘soft landing.’”

  • “If pricing growth remains stronger than preferred—as seen in this CPI report—look for the FOMC to wait until midyear before it makes a move.” 
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