January CPI Rises 6.4% Year-Over-Year: Fed Adjusts to Slower Pace of Rate Hikes

The U.S. Bureau of Labor Statistics reported on Tuesday, February 14th that the Consumer Price Index (CPI) rose 6.4% year-over-year in January, slightly above the 6.5% reading recorded in December.[0] The 0.5% monthly increase was in line with economists’ expectations, while the core CPI, which strips out volatile food and energy prices, rose 0.4% month-over-month and 5.6% year-over-year.

The January reading of the Consumer Price Index marked the seventh consecutive month of cooling in annual inflation since it peaked at 9.1% in June, the highest reading since 1981.[1] This is still much higher than the 2.1% average in the three years before the pandemic.

In less than twelve months, the Federal Reserve has significantly increased borrowing costs from close to zero to a goal level of 4.5% to 4.75%, as the United States' main bank seeks to tame skyrocketing costs.[2] At its most recent policy meeting, the Federal Reserve (Fed) announced a minor 25-basis-point increase, but Fed chair Jerome Powell has cautioned that rates may need to remain elevated for longer due to the robustness of the labor market observed in data.[3]

The Shelter Index, comprising of rent and housing expenses, had a 7.9% yearly increase and a 0.7% monthly rise.[4] Half of January's inflation rate was attributable to this.[5] Rent costs jumped 8%, another new record.[6]

The prices of food consumed at home increased moderately by 0.4% in the month, while prices of food consumed away from home rose at a faster rate of 0.6% from December.[7]

The overall cost of food, including eating out, rose by 10.1%.[8] Breakfast cereal, bakery products, milk, carbonated drinks, margarine and bread are some of the food categories that have seen an increase in inflation, with year-on-year (Y/Y) figures of +15.0%, +15.4%, +11.0%, +14.3%, +44% and +14.9% respectively.[9] Year-over-year, the price of meat only increased by 2.2%, with beef and veal experiencing a decrease.[9]

The Fed has transitioned to a slower pace of rate hikes in recent months, suggesting confidence that the central bank has begun to tame inflation.[10]

0. “Inflation surged 6.4% in January, higher than expected” New York Post , 14 Feb. 2023, https://nypost.com/2023/02/14/inflation-surged-6-4-in-january-higher-than-expected/

1. “Annual Inflation Cooled Slightly in January as Pace of Moderation Levels Off” The Wall Street Journal, 14 Feb. 2023, https://www.wsj.com/articles/us-inflation-january-2023-consumer-price-index-f080e30b

2. “U.S. inflation slowed slightly in January – Labor Department By Investing.com” Investing.com, 14 Feb. 2023, https://www.investing.com/news/economic-indicators/us-inflation-slowed-slightly-in-january–labor-department-3002904

3. “Inflation is higher than expected at 6.4%, with the ‘most important' measure remaining elevated” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/inflation-higher-than-expected-in-january.html

4. “January inflation comes in higher than expected” WAVY.com, 14 Feb. 2023, https://www.wavy.com/news/national/annual-inflation-rose-6-4-percent-in-january-cpi/

5. “Inflation ticks down to 6.4% even as January prices climbed” MLive.com, 14 Feb. 2023, https://www.mlive.com/public-interest/2023/02/inflation-ticks-down-to-64-even-as-january-prices-climbed.html

6. “January inflation hit 6.4%, missing analysts' expectations for a faster slowdown” NBC News, 14 Feb. 2023, https://www.nbcnews.com/business/economy/inflation-rate-january-2023-what-it-means-will-interest-rates-go-up-rcna70401

7. “CPI shows inflation still sticky and slowing grudgingly” MarketWatch, 14 Feb. 2023, https://www.marketwatch.com/story/cpi-shows-u-s-inflation-still-sticky-e08c9671

8. “Grocery prices remain higher in January, led by eggs and citrus” Yahoo News, 14 Feb. 2023, https://news.yahoo.com/grocery-prices-remain-higher-in-january-led-by-eggs-and-citrus-152442563.html

9. “Food inflation is still running double digits – watch these stocks for pricing power” Seeking Alpha, 14 Feb. 2023, https://seekingalpha.com/news/3935716-food-inflation-is-still-running-in-the-double-digits-watch-these-stocks-for-pricing-power

10. “Inflation continued to cool in January” ABC News, 14 Feb. 2023, https://abcnews.go.com/Business/inflation-data-show-prices-eased-amid-hot-jobs/story?id=97079985