U.S consumer prices accelerated in January, but the annual increase was the smallest since late 2021, pointing to a continued slowdown in inflation and likely keeping the Federal Reserve on a moderate interest rate hiking path.
The consumer price index increased 0.5% last month after gaining 0.1% in December, the Labor Department said on Tuesday. Monthly inflation was boosted in part by rising gasoline prices, which increased 3.6% in January, according to data from the U.S. Energy Information Administration.
Economists polled by Reuters had forecast the CPI climbing 0.5%. Much of the survey was conducted before the Labor Department's Bureau of Labor Statistics (BLS) published annual revisions to the seasonally adjusted CPI data on Friday. The BLS also updated the seasonal adjustment factors, the model that it uses to strip out seasonal fluctuations from the data.
Spending weights used to calculate the CPI were also updated effective with January's report. The new weights, which were published on Friday, reflect consumer spending in 2021.
Housing's share of the CPI has now been raised, but weights for transportation and food were lowered. The revisions, updated seasonal factors and new weights prompted some economists to bump up their CPI forecasts.
Nevertheless, inflation is slowing, which would allow the Fed to continue with its small pace of rate hikes next month.
In the 12 months through January, the CPI increased 6.4%. That was the smallest gain since October 2021 and followed a 6.5% rise in December. The annual CPI peaked at 9.1% in June, which was the biggest increase since November 1981.
The moderation in price pressures reflects tighter monetary policy, which is weighing on demand, as well as improved supply chains. But it will be a while before inflation moves back to the Fed's 2% target because of sticky rents and a tight labour market, which are keeping prices for services elevated. The U.S. central bank has raised its policy rate by 450 basis points since last March from near zero to a 4.50%-4.75% range, with the bulk of the increases between May and December. Economists believe the Fed could lift this rate above the 5.1% peak it projected in December and keep it there for some time.
Excluding the volatile food and energy components, the CPI increased 0.4% after rising 0.4% in December. In the 12 months through January, the so-called core CPI gained 5.6% after rising 5.7% in December.
