Inflation in January 2023: Live Updates
Inflation has continued to be a major concern for the economy; however, January saw the Consumer Price Index (CPI) inflation rate slow down to 6.4%. This decrease was a result of the lower cost of used vehicles, which provided some relief to the consumers who had been struggling with high prices over the past year. In comparison to last month, there was an acceleration in the inflation rate in January as prices increased by 0.5%. Despite the fact that inflation has been on the decline for the past seven months, the high rates have resulted in a decrease in the real value of consumers’ income, despite historic wage increases. Inflation also increases the risk of a recession.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.
The acceleration in the inflation rate in January can be attributed to the rising shelter costs. Rising shelter costs contributed to 60% of the 6.4% annual inflation rate, and 50% of the monthly increase of 0.5%. The rise in core CPI, which is a measure of inflation that strips away volatile food and energy prices, was not a cause of concern since the rise in shelter prices could result in smaller increases in the upcoming months.
New changes in CPI took place last month, which took into account the shift in consumer spending patterns. The weights for certain categories were also updated, with the housing category accounting for 44.4% of CPI as compared to 42.4%. Shelter, which now accounts for 34.4%, and rent, which accounts for 25.4%, contributed to the increase. Although OER is still on the rise, a higher weight may result in upward pressure on core CPI in the near term.
Impact on the Stock Market and Treasury
Stocks opened lower after the report’s release, with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite briefly turning positive but reversing course. The 10-year Treasury notes climbed above 3.7% after the report was released.
President Statement on CPI January data
President Joe Biden has issued a statement on the January Consumer Price Index (CPI) report, stating that inflation in America is continuing to come down, which is good news for families and businesses across the country. The data confirm that annual inflation has fallen for seven straight months, with inflation for food at the grocery store also decreasing last month. Gas prices are down about $1.60 from their peak last year, and real wages for working Americans are up over the last seven months.
While there is still more work to be done to ensure steady and stable growth, the President’s focus remains on continuing to lower costs for families, rebuilding supply chains, and investing in America. The Inflation Reduction Act has been passed to lower prescription drug costs, healthcare costs, and home energy costs for tens of millions of Americans, all while lowering the deficit. The administration is also eliminating junk fees, creating manufacturing jobs, and investing in critical programs like Medicare and Social Security.
However, the President’s Republican colleagues in Congress seem intent on taking the country in the opposite direction, proposing to repeal the Inflation Reduction Act and threatening to cut Medicare and Social Security, which could raise costs for seniors and create economic chaos. The President stands firmly against any effort to make inflation worse and increase costs for families. Today’s data reinforces that the country has made historic progress and is on the right track, but there is still more work to be done.
Federal Reserve’s Next Move
Despite the Federal Reserve’s next meeting being a month away, the January CPI report combined with the latest jobs report will likely result in the Fed raising interest rates by 25 basis points for the second time this year. The report is not likely to give the Fed the confidence that inflation will continue to ease on its own and the Fed is expected to continue raising interest rates.
Inflation has been a major concern in the economy and the CPI inflation rate for January has shown a decrease. Although the Fed is likely to continue to raise interest rates, the upward pressure on core CPI in the near term may not be sustainable.