CPI January 2023 at 6.4%, core inflation up: live updates

Inflation eased for the seventh straight month in January as annual inflation in goods and services prices slowed to 6.4%, helped by lower used car costs.

However, compared to December, inflation rose 0.5% from 0.1% last month, driven by housing costs.

The data comes after last month’s surprise jobs report showed employers hired 517,000 new workers, far exceeding economists’ expectations.

Americans have been grappling with high prices for over a year, causing the real value of their income to fall despite historic wage increases. High inflation has also increased the risk of a recession.

The report “underscores the challenges facing the Fed,” said John Leer, chief economist at Morning Consult. “Inflation may have peaked, but it’s showing no signs of a quick return” to the Fed’s 2% inflation target, he said. To get there, the Fed will likely have to raise rates higher and for longer than many expected.

Core CPI

The core CPI, a measure of inflation that excludes volatile food and energy prices, rose 0.4% last month from December’s 0.3% rise. This put the annual core CPI inflation rate at 5.6%.

Housing costs drove up inflation

Rising housing costs were the biggest factor behind rising inflation last month and yes, they accounted for half of the 0.5% monthly price hike and 60% of the 6.4% annual inflation rate, the Labor Department said. The cost of accommodation increased by 0.7% in the last month, up 7.9% from a year ago.

“Shelter’s contribution to inflation is likely to slow in the coming months,” said Leer.

Inflation may have peaked, but there is no sign of a quick return to the Fed’s long-term target of 2 percent. Shelter’s contribution to inflation is likely to slow in the coming months, but upside risks to durable goods prices remain. Despite all the challenges facing US consumers, demand remains too strong relative to supply. The fight against inflation is far from over.”

What’s different about the January CPI?

New changes went into effect last month to adapt to changing consumption patterns. CPI accounts for price increases for more than 200 categories and the portion of the typical American budget that they consume.

This is done so that the overall CPI reflects the proportional price changes that consumers are experiencing. Disregarding consumer budgets, the 70 percent increase in the price of a carton of eggs a year ago could disproportionately skew the overall inflation data.

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Ahead of the January CPI release, the Bureau of Labor Statistics released new weights for certain categories, a process it goes through every two years. In the future, the weights will be updated every year.

With the new changes, housing accounts for 44.4% of the CPI, up from 42.4%. This reflects an increase in the weighting of accommodation from 33.3% to 34.4% and rent, also known as Owners’ Equivalent Rent (OER), which has increased from 24.3% to 25.4%.

“Right now, OERs are still hot, so a higher weighting is likely to keep core CPI under upward pressure near-term,” said Jim Reid, economist at Deutsche Bank.

Meanwhile, the weighting of food fell to 13.5% from 13.9%.

Stock Market Futures

Shares were little changed after the report was released. Futures traded for the Dow Jones Industrial Average are up slightly.

What January Inflation Data Means for the Fed

Although the Federal Reserve has another month to go, Tuesday’s CPI report coupled with the latest jobs report is likely to prompt the Fed to hike interest rates by 25 basis points for the second time this year.

The report is unlikely to give the Fed enough confidence that inflation will ease further on its own to stop raising interest rates.

10 years treasury

Yields on 10-year Treasury bills rose after the report was released. They are trading above 3.7%, near the month’s highs.

Elisabeth Buchwald is personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here