In January, inflation continued to decrease, reaching 0.4%, bringing the annual index to 3.1%. This shows a downward trend since the peak in 2021 after the coronavirus crisis. The housing index increased by 0.6% in January, while the food index increased by 0.4%. On the other hand, the energy index fell 0.9% due to a drop in gasoline prices.
The report, published by the Department of Labor’s Bureau of Statistics on February 13, showed that the Consumer Price Index (CPI) increased 0.3% from December to January, compared to a 0.2% increase the previous month. Prices are up 3.1% compared to a year ago, down from 3.4% in December. Inflation has been falling from the peak of 9.1% reached in 2022, but it is still well above the Federal Reserve’s 2% target level.
Inflation and the economy have become central issues in President Joe Biden’s quest for re-election. The government notes that inflation has been brought under control since the coronavirus pandemic disrupted supply chains, causing prices to rise. Forecasts suggest that inflation will continue to cool, but people’s perception is that the cost of living is still much more expensive. Average prices are about 19% higher than when Biden took office.
The data released is mixed and could reinforce the caution of the Federal Reserve, which has said they are satisfied with the progress in reducing inflation, but they want to see more evidence before feeling confident that it is sustainably returning to its 2% target. Most economists believe the Fed will want to wait until May or June to start cutting its benchmark rate from its 22-year high. The Federal Reserve raised its key rate 11 times from March 2022 to July of last year in an effort to lower high inflation. This has resulted in much higher debt rates for businesses and consumers, including mortgages and auto loans. Rate cuts, when they occur, would eventually lead to lower borrowing costs for many loan categories.
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