WASHINGTON–U.S. inflation accelerated to a 7.5% annual rate in January, reaching a four-decade high and driven by continued strong consumer demand and pandemic-related supply constraints that have combined to push up prices.
One credit union economist said the numbers make it clear there is “no reason” for the Fed not to lift rates when it next meets in March.
The data was released by the Labor Department, which said the consumer-price index in January was at its highest level since February 1982, when compared with January a year ago, and higher than December’s 7% annual rate.
Inflation has been above 5% for the past eight months as a U.S. rebound from earlier in the Covid-19 pandemic created imbalances in the economy, noted the Wall Street Journal in its analysis.
The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 6% in January from a year earlier. That was a sharper rise than December’s 5.5% increase, and the highest rate in nearly 40 years.
On a monthly basis, the CPI increased a seasonally adjusted 0.6% last month, holding steady at the same pace as in December.
‘Consumers Felt the Pressure’
“Prices increased slightly in January after showing signs of deceleration in December. Consumers felt the pressure on their household finances due to broad-based increases across several items such as food, utilities, housing, and health care,” said CUNA Senior Economist Dawit Kebede, “Prices for new vehicles remained unchanged in January but used car prices increased at a slower rate compared to previous months. This may be an indication of improving supply chains in auto manufacturing.
“A strong labor market is an indication of increased economic activity and consumer demand. It is becoming clearer that there is no reason to keep interest rates close to zero when inflation is record high,” Kebede continued. “The Federal Reserve is expected to increase the benchmark rate by at least 25 basis points next month.”
Added NAFCU's chief economist, Curt Long, "The energy index rose 0.9% in January, continuing a long series of increases. Despite the fact that the gasoline index fell 0.8 %, the sharp rise in the electricity index (+4.2%) was able to drive-up overall energy prices. Rising costs for shelter--+4.4% from a year ago--and used autos, +40.5% from a year ago, are creating a high floor for core CPI, which has increased by at least 0.5% for the seventh time in the last 10 months."
"This report puts a 50-basis point rate hike squarely on the table for the FOMC at its March meeting. Given the Fed’s fear of surprising markets, this would likely be preceded by a coordinated communication campaign by Fed officials. St. Louis Federal Reserve Bank head James Bullard has already indicated that he favors a 50-point hike in March, which reverses his stated position from a week earlier," said Long.
Additional Data Points
Among the data points in the new Labor Department data:
- A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase.
- Used-car prices continued to drive overall inflation, rising 40.5% in January from a year ago. However, prices for used cars moderated on a month-to-month basis, increasing by 1.5%. That was down from a 3.3% increase in December and the smallest gain since September—a possible sign, as CUToday.info has reported, that a major source of inflationary pressure over the past year could be easing.
- Food prices surged 7%, the sharpest rise since 1981. Restaurant prices rose by the most since the early 1980s, pushed up by an 8% jump in fast-food prices from a year earlier. Grocery prices increased 7.4%, as meat and egg prices continued to climb at double-digit rates.
- Energy prices rose 27%, easing from November’s peak of 33.3%. But the jump in electricity costs was particularly sharp when compared with historical trends, with prices up 10.7% from a year ago and 4.2% from December. The latter was the sharpest one-month rise since 2006.
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