Inflation was hotter than expected across the US last month as it continues to fall back from its highest levels in a generation.
Price growth dropped to an annual rate of 3.1% in January, according to official data; above economists’ expectations of 2.9%. In December, the consumer price index stood at 3.4%.
The latest official data sparked a pre-market sell-off on Wall Street before New York opened for trading on Tuesday. Stock markets have scaled record highs in recent weeks as investors grew more confident about the easing of inflation and some of the US’s largest companies released robust results.
While inflation has fallen sharply since peaking above 9% in June 2022, many Americans are still feeling the pinch. Joe Biden, who is standing for re-election in November, must persuade them that the economy is working for them.
On a monthly basis, the consumer price index rose by 0.3% in January, up from 0.2% the previous month and also higher than the 0.2% expected.
The so-called “core” index, which strips out volatile food and energy prices, is closely watched as it tends to provide a better indication of inflation’s trajectory. It also increased on the month, from 0.3% to 0.4%.
The US Bureau of Labor Statistics, which releases the data each month, said the index was driven higher in January by the rising cost of shelter, including rent; motor vehicle insurance; and medical care.
The US economy has remained robust in recent years, adding millions of jobs and defying predictions of recession even as the Federal Reserve has embarked upon an aggressive campaign to take on inflation. Employers added 353,000 jobs last month alone.
Many Americans have not been feeling positive about the economy, as they grapple with their own financial realities. A closely-watched survey by the University of Michigan indicated a rallying in consumer confidence last month, however, with sentiment jumping to its highest level since July 2021.
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Now that annual inflation is easing back towards 2%, Fed policymakers are preparing to cut interest rates for the first time in four years. Wall Street is betting that it will start doing so as soon as May, after the Fed chairman Jerome Powell signaled that a cut was unlikely next month.
Shelter costs have propped up growth in the price of services, according to economists at Bank of America. “Used car deflation should drive a decline in core goods prices while core services should remain sticky high,” they wrote in a note to clients ahead of the January report.
