Core CPI Holds Steady as Inflation Rates Continue to Climb

The most recent Consumer Price Index (CPI) report from the Bureau of Labor Statistics (BLS) reveals that on a seasonally adjusted basis, US inflation increased by 0.5% in January, exceeding the consensus expectation of 0.4%. Inflation has increased despite forecasts that it will decline by the end of 2022. The majority of the monthly gain was due to a surge in property prices, which accounted for over half of the total increase.

Before seasonal adjustment, the CPI index increased by 6.4% annually, the lowest annual increase since October 2021. Nonetheless, as of the January report, the BLS has modified its technique for computing the CPI by utilizing consumption data from the previous year. The spending weights used to determine inflation have also been modified, with the shelter component’s weight increasing from 32.4% to 34.4%.

In contrast, food inflation has proven resistant to decline, with prices increasing 10.1% year-over-year in January. In January, the food index increased by 0.5%, while the energy index increased by 2%. Excluding food and energy, the core CPI increased by 0.4% versus the expected 0.3% increase.

The Federal Reserve (Fed) has been closely observing the CPI index and other economic indicators to evaluate if higher-than-anticipated inflation necessitates a more aggressive approach regarding interest rate increases. The Federal Reserve is anticipated to raise its benchmark interest rate by 50 basis points, or 0.5 percentage points, from its current target range of 4.5% to 4.7%.

Despite the higher-than-anticipated inflation rate, stock market investors continue to anticipate a slower pace of rate hikes following Fed Chair Jerome Powell’s news conference stating that he anticipates “substantial decreases” in inflation this year. Following the CPI announcement, futures prices were mixed, with investors keeping a close eye on inflation trends and Federal Reserve monetary policy choices.

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