The January data reveals a 0.3% increase in inflation in the United States, bolstering expectations that the Federal Reserve will still decrease interest rates in the coming year.

Movie DetailerWorld The January data reveals a 0.3% increase in inflation in the United States, bolstering expectations that the Federal Reserve will still decrease interest rates in the coming year.
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The U.S. experienced higher-than-expected consumer price growth in January due to increases in housing and healthcare costs. However, this is unlikely to impact expectations that the Federal Reserve will begin reducing interest rates in the first half of 2024.
The Bureau of Labor Statistics reported that the consumer price index (CPI) rose by 0.3% last month, following a 0.2% increase in December. Revisions to the CPI data released last week were mixed, but overall indicated a downward trend in inflation after a surge in 2022.
Over the 12 months leading up to January, the CPI increased by 3.1%, compared to a 3.4% increase in December. Economists surveyed by Reuters had predicted a 0.2% monthly increase and a 2.9% year-on-year increase. The annual rise in consumer prices has moderated since its peak of 9.1% in June 2022.
The Bureau of Labor Statistics adjusted the seasonal factors used to remove seasonal fluctuations from the data. The updated weights resulted in higher housing share and lower share for new and used cars when calculating the January CPI.
This adjustment may partially explain the higher-than-expected readings, which economists believe to be temporary.
Financial markets anticipate that the Federal Reserve will start cutting interest rates in May, although some economists are leaning towards June due to the ongoing tight labor market and persistently high services inflation.
Policymakers have stated that they are not in a hurry to lower borrowing costs and require convincing evidence of a sustained slowdown in inflation.
While progress has been made, risks remain, such as potential disruptions in the Red Sea shipping and drought in the Panama Canal, which could lead to renewed supply chain issues. However, the outlook for inflation remains relatively favorable as rent increases are expected to moderate this year.
Since March 2022, the Fed has increased its policy rate by 525 basis points, bringing it to the current range of 5.25% to 5.50%.
Excluding the volatile food and energy components, the CPI rose by 0.4% last month, following a 0.3% increase in December. Alongside rent increases, price adjustments at the beginning of the year likely contributed to the rise in the core CPI.
The core CPI increased by 3.9% year-on-year in January, matching the increase in December.
Although consumer prices remain elevated, indicators tracked by the Federal Reserve for its 2% inflation target have improved significantly. The personal consumption expenditures (PCE) price index increased at an annualized rate of 1.7% in the fourth quarter, down from a 2.6% pace in the July-September quarter. The core PCE price index remained at a 2.0% rate, unchanged from the third quarter.

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