WASHINGTON–For the seventh straight month, inflation showed moderation in January, but not to the degree many had hoped and forecast.
According to the new federal data, the Consumer Price Index revealed consumer prices increased 6.4% year-over-year in January, down slightly from 6.5% one month earlier. Monthly prices in January increased 0.5%, a faster rate compared to the previous two months.
Analysts, including CUNA Senior Economist Dawit Kebede, noted the numbers came in higher than expected.
“Increase in housing prices contributed for half of the monthly rise. Its contribution to core consumer price index (CPI), excluding food and energy items, is even higher at 60%,” said Kebede. “The index for housing is a lagged indicator in measuring the CPI relative to current market trends. If this index stayed sideways in January, inflation would have slowed in line with expectation. The CPI is expected to reflect current market declines in housing prices in the second half of the year.
“Prices for medical care, air travel, and used cars went down in January. The price for used cars declined by 1.9% continuing a downward trend,” Kebede continued. “The increase in new car prices is also the slowest in the last six months. This shows that auto prices are not only stabilizing but also partly giving back the price gains in the last two years. Used car prices are now down 11.6% relative to a year ago.
NAFCU: ‘Sustained Tightening Ahead’
“The January CPI report adds to doubts that inflation is truly on a path back to the Federal Reserve’s target. In conjunction with the blowout jobs report in January, this further augments recent assertions from the FOMC for sustained tightening over the coming spring, increasing the potential of an acceleration in the size of individual hikes as well as the terminal rate,” said NAFCU Chief Economist Curt Long. “Credit unions should anticipate the fed funds rate clearing 5%, with no rate cuts in 2023."
‘A False Dawn’
Jason Furman, an economist at Harvard University and a former Obama administration economic adviser, told the New York Times, “The inflation picture that had started to look better a month ago, it turns out that a lot of that was probably a false dawn. The whole perspective we have on inflation is much worse.”
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