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Inflation eased again in January, but there’s a warning sign

Inflation cooled in January for the seventh consecutive month.

But there is a warning sign: while the 12-month price increase was slightly smaller, prices did rise between December and January, suggesting that inflation is still far from tamed.

Consumer prices last month were 6.4 percent higher than a year ago, according to a Labor Department report on Tuesday. This is the lowest annual inflation reading since October 2021.

However, prices increased by 0.5 between December and January, the fastest monthly increase since October last year.

The recent rise in prices suggests that inflation may have more staying power than financial markets anticipated.


“There was an expectation that it would go away quickly and painlessly, and I don’t think it’s guaranteed at all,” Federal Reserve Chairman Jerome Powell said last week. “The base case for me is that it’s going to take time and we’re going to have to do more rate hikes and then we have to look around and see if we’ve done enough.”

The Federal Reserve has already raised interest rates by 4.5 percentage points since last March in a bid to curb inflation. Fed policymakers have hinted at two more rate hikes, totaling 0.5 percentage point, in the coming months.

“We expect 2023 to be a year of significant declines in inflation and it’s actually our job to make sure that’s the case,” Powell said, in an appearance before the Economic Club of Washington. But he warned that it would likely be 2024 before inflation returns to the Fed’s 2% target rate.

Gas prices are on the rise and used cars may be next

The increase in the consumer price index between December and January was fueled by rising costs for food, lodging and petrol.

Excluding food and energy price volatility, “core inflation” was 0.4% for the month, unchanged from December.


Gas prices fell during the first two weeks of February, but AAA warns drivers can’t count on falling prices at the pump to keep inflation in check.

“We are entering the more expensive spring and summer driving season, so drivers should prepare for that,” said AAA’s Devin Gladden. “It will likely be a volatile year given the amount of uncertainty that remains around the economy.”

Used car prices have also acted as a drag on inflation, falling 8.8% last year and another 1.9% in January. But signals from the wholesale market suggest used car prices could rise again in the coming months.

The Fed also keeps an eye on the price of services, such as haircuts and restaurant meals. Those prices are largely driven by labor costs and are therefore less likely to fall than commodity prices.

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