WASHINGTON (AP) — The White House held a briefing as U.S. consumer inflation slowed last month but remained elevated, the latest sign that a price surge fueled by pandemic is only gradually and intermittently under control.
Watch the briefing in the player above.
The report released Tuesday by the Labor Ministry showed that the consumer price index rose 0.3 percent between December and January, compared to a 0.2 percent increase the previous month. Compared to last year, prices increased by 3.1 percent.
This is lower than December’s figure of 3.4 percent and well below the inflation peak of 9.1 percent reached in mid-2022. But the latest figure remains well above the Federal Reserve’s 2% target, at a time when public frustration with inflation has become a central issue in President Joe Biden’s re-election bid.
Excluding volatile food and energy costs, so-called core prices rose 0.4 percent last month, compared with 0.3 percent in December. On an annual basis, core prices increased by 3.9 percent in January, the same as in December. Core inflation is closely monitored because it generally provides a better idea of the likely direction of inflation.
Tuesday’s report showed that the drivers of inflation have shifted decisively from goods, like used cars, gasoline and groceries, whose prices fall or rise much more slowly, to services, including hotel rooms, restaurant meals and medical care. The move could raise concerns at the Fed because services inflation typically takes longer to subside.
At his latest news conference, Fed Chairman Jerome Powell pointed to persistently high services prices as a concern and indicated that central bank policymakers would like to see services inflation decline further. before starting to reduce their key interest rate.
“There is still some inflation in the system that is going to take time to overcome,” said Omair Sharif, founder of Inflation Insights, a research firm. “This justifies the Fed wanting to wait and see how things go.”
Tuesday’s surprisingly poor inflation data sent stock and bond prices tumbling, with financial markets now pricing in the Fed’s first rate cut in June, rather than May or March as many traders had previously planned. The S&P 500 was down nearly 1.2 percent by early afternoon, and the yield on the 10-year Treasury note jumped a tenth, to 4.28 percent.
Biden administration officials responded to Tuesday’s report by noting that the average hourly wage, adjusted for inflation, increased in January and is 1.4 percent higher than it was a year ago earlier. But the average workweek shrank because some companies cut their employees’ work hours, leaving the inflation-adjusted weekly wage slightly lower than it was a year earlier.
“We understand that there is still work to be done, but we are in an economy that is in a very different situation from what it was a year ago,” said Karine Jean-Pierre, attaché at the White House Press. “When you see eggs and milk and products like that in grocery stores going down, they’re lower than they were a year ago, that’s important.”
Some economists have cautioned against attributing too much importance to January’s inflation data, noting that many companies impose annual price increases in the first month of the year, giving a blow temporary inch to January figures. The government seeks to adjust the data seasonally to account for these trends, but it doesn’t always do it perfectly.
In fact, a range of forward-looking data suggests that inflation will continue to slow. The pace of wage growth has slowed, reducing pressure on companies to raise prices to offset rising labor costs. And consumers and business owners collectively expect inflation to decline in the months and years to come, surveys show, a trend that may itself dampen rising prices.
From December to January, average domestic gas prices fell 3.3 percent, the government said. Yet so far this month, the average price has climbed, increasing 15 cents to $3.23 per gallon on Tuesday, according to AAA.
LEARN MORE: Economists expect Federal Reserve to cut rates this year as inflation slows
Food prices increased by 0.4 percent between December and January, the largest increase in a year, although compared with 12 months earlier, food prices increased by only 1. 2 percent.
But costs for services — including car insurance, apartment rents and concert tickets — continue to rise faster than before the pandemic, keeping overall inflation persistently high. The cost of car insurance has increased by more than 20 percent on average compared to a year ago.
Such price spikes cause heartburn for many consumers. Bill Milligan of Atlanta said he was stunned last month to find that the cost of insuring one of his cars had climbed nearly 30 percent from six months earlier.
“I was like, ‘What is this?’ » » Milligan said he thought when he saw the amount on his bank statement.
Milligan, a 46-year-old software architect, called his insurance company, which confirmed that the price increase did not reflect recent tickets or accidents and said he still received a discount to insure several cars at once.
“And they say, ‘Yeah, sorry, it’s just that the price of everything is going up,'” Milligan said.
Milligan, who said he received a substantial pay raise last year, acknowledged that he is still doing well financially.
“I can’t complain about that,” he said, referring to inflation in general.
But like many Americans, rising prices have led him to worry about the future. He wonders how his eldest of three daughters, who wants to become a teacher, will be able to live on an educator’s salary when costs have increased so much.
The mixed data released Tuesday will likely add to the caution of Fed officials, who said they were satisfied with progress in drastically reducing inflation but want to see additional evidence before being convinced that the Fed is sustainably returning to its target. 2% target. Most economists still believe the Fed will begin cutting its benchmark rate in June, from its 22-year high of around 5.4%.
Another factor driving up prices is the cost of housing, particularly the price of homeownership. It increased by 0.6% between December and January, the largest one-month increase since April. This measure is 6.2 percent higher than it was a year earlier.
But housing costs are expected to slow in the coming months. The price of new apartment leases has been steadily declining as more apartment buildings are completed. It may take months for the drop in new lease prices to be reflected in government data.
At the same time, economists believe that healthcare inflation is likely to remain high. The cost of hospital services jumped just 1.6 percent between December and January. Medical services increased by 0.6 percent.
Sharif said the increases likely reflected, in part, large pay increases in recent years for nurses and other in-demand medical workers, such as anesthesiologists and radiologists.
The Fed raised its key rate 11 times, from March 2022 to July last year, as part of a concerted effort to defeat high inflation. The result has been much higher borrowing rates for businesses and consumers, particularly for mortgages and auto loans. Rate cuts, when they occur, would ultimately lead to lower borrowing costs for many loan categories.
Lower borrowing costs could boost economic growth. But a strong economy can also pose a challenge for the Fed, because faster growth can accelerate wages and consumer spending. If companies are unable to meet growing customer demand, they typically respond by raising prices, which would worsen inflation.
AP writer Josh Boak contributed to this report.
