Inflation Bites Back

Inflation Bites Back

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  • The Labor Department's report revealed that inflation in January surpassed expectations, primarily due to persistently high shelter prices, weighing on consumers. The consumer price index (CPI) rose 0.3% for the month, with an annual increase of 3.1%, slightly down from December's 3.4%. Economists had forecasted a monthly increase of 0.2% and an annual gain of 2.9%. Excluding volatile food and energy prices, the core CPI accelerated by 0.4% in January and remained up 3.9% from a year ago, unchanged from December.
  • Shelter prices, comprising about one-third of the CPI weighting, were a significant contributor to the rise, climbing 0.6% for the month and 6% on a 12-month basis. Meanwhile, food prices increased by 0.4%, while energy prices fell by 0.9%, primarily due to a 3.3% decline in gasoline prices. The release prompted a sharp decline in stock market futures and a surge in Treasury yields. Despite the increase in prices, inflation-adjusted hourly earnings rose by 0.3% for the month, though real weekly earnings fell by 0.3% when adjusted for the decline in the average workweek. Federal Reserve officials, aiming to balance monetary policy in 2024, anticipate inflation to retreat to their 2% annual target, largely due to expectations of a deceleration in shelter prices throughout the year. 

Why it matters

However, January's inflation uptick poses challenges for a central bank contemplating easing its tight monetary policy.


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