Fed's Efforts to Curb Inflation Stall as CPI Rises 0.5% in January

 New data released by the US government on Tuesday revealed that rising rent and gasoline prices kept consumer prices high in January, indicating that inflation remains a concern for policymakers. Despite the efforts of the US central bank to combat inflation by raising interest rates over the past year, the Consumer Price Index (CPI) rose 6.4% from a year ago, remaining significantly above the policymakers’ target of 2%. Although the CPI eased slightly from December, it remains elevated due to certain stickier areas, including shelter, food, gasoline, and natural gas.

The report indicates that there is still more work to be done as the Federal Reserve attempts to lower costs. Wall Street stocks remained relatively stable in response to the new data. There was only modest improvement in annual inflation, as well as in services inflation, excluding volatile components and housing. For Fed officials, this slow grind down in inflation supports their higher-for-longer view on interest rates, suggesting that they will continue lifting rates and keeping policy restrictive for some time.

Although the economy’s resilience offers hope that the United States can avoid a major downturn, there is concern that many gains made from savings on gas are having to be spent elsewhere. Despite a modest 1.5% increase in gasoline prices, food prices were still around 10% higher in January from a year ago, and electricity costs were up 11.9%. Analysts warn that rental costs won't peak until the second half of this year, while wage growth remains robust and there is still pent-up demand for services spending.

While goods disinflation will continue, it will take a significant amount to offset services inflation in the pipeline. Policymakers have more work to do, and it is likely they will continue lifting rates and keeping policy restrictive for some time. Fed officials are committed to staying the course until their job is done, as they believe subdued growth will likely be needed to bring inflation down toward their goal.