A measure of inflation preferred by the Federal Reserve rose in January, indicating that the decrease in U.S. consumer prices is not consistent month to month.

The latest government report on Thursday showed an increase in prices by 0.3% from December to January, compared to 0.1% in the previous month. However, there is some positive news as prices were only up by 2.4% from the previous year, which is lower than the 2.6% increase in December and the smallest annual growth in almost three years.

The decrease in inflation over the past year will likely be seen as positive by the White House, as President Joe Biden prepares for the next election. However, despite incomes outpacing inflation, many Americans are still unhappy with the overall high prices compared to pre-inflation levels three years ago. This sentiment, reflected in various public opinion polls, may potentially hinder Biden’s chances of re-election.

The Federal Reserve’s preferred measurement of inflation decreased gradually throughout the previous year, dropping from its height of 7.1% in the summer of 2022. Disruptions in the supply chain have improved, resulting in lower costs for components and resources. Additionally, a consistent stream of job seekers has enabled employers to control wage increases, a significant contributor to inflation. Despite these improvements, inflation remains higher than the central bank’s desired annual target of 2%.

Prices, excluding those for food and energy, increased by 0.4% between December and January, a significant increase from the previous month’s 0.1% rise. In comparison to the same time last year, core prices, which do not factor in volatile food and energy costs, rose by 2.8%, slightly lower than December’s 2.9% increase. Experts believe that core prices provide a more accurate indication of potential inflation moving forward.

Some of January’s inflation reflects the fact that companies often raise prices in the first two months of the year, leaving January and February price data high compared with the rest of the year. But the costs of hospital and doctors’ services are also rising to offset the sizable pay raises commanded by nurses and other in-demand health care workers.

This pattern may contribute to maintaining high levels of inflation in the upcoming months. However, in the beginning of spring, experts anticipate that prices will return to the lower rate of growth seen in the latter half of 2023, when inflation dropped to an annual rate of 2%.

The increase in inflation in January offers an explanation for the worries shared by numerous members of the Federal Reserve, such as Chair Jerome Powell, about the possibility of reducing interest rates prematurely this year. One important member, Christopher Waller of the Federal Reserve’s Board of Governors, stated this month that he would prefer to wait for two more months of inflation data following January’s to assess if prices were steadily decreasing towards the Fed’s desired level.

Starting in March of 2022, the Federal Reserve increased its benchmark rate 11 times in response to the severe spike in inflation, the worst seen in the past four decades. These rate increases have effectively subdued inflation, but have also resulted in higher borrowing costs for both individuals and businesses. As a result, the housing market, which is a crucial aspect of the economy, has been seriously impacted by the rise in loan rates. Alternatively, if the Fed were to lower rates in the future, it would eventually result in lower borrowing costs for the entire economy.

Thursday’s inflation data mirrors figures released earlier this month that showed that the government’s more widely followed consumer price index also rose faster in January than it had in previous months. The Fed prefers the measure reported Thursday, in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.

Many Federal Reserve officials are expressing confidence that inflation will decrease and reach the target level set by the Fed. Some are also de-emphasizing the recent increase in prices, viewing it as a temporary occurrence.

“The journey ahead may have its challenges, and we must refrain from making impulsive decisions based on isolated data points,” stated Susan Collins, who serves as the president of the Federal Reserve Bank of Boston, on Wednesday. She added, “I maintain a ‘pragmatic optimist’ approach, believing that the economy is headed towards a steady 2% inflation rate and maintaining a strong job market.”

Some other government representatives express less certainty. Jeffrey Schmid, the recently appointed president of the Federal Reserve Bank of Kansas City, stated this week that he believes “we are not completely free from the threat of high inflation.”

Economists predict that there will be a gradual but unsteady decrease in inflation in the following months. According to Goldman Sachs, the Fed’s preferred measure of core inflation is expected to drop significantly to 2.2% by May, potentially triggering rate cuts by the Fed in June.

Source: voanews.com