US Inflation Eases in January

Some elements of inflation is stickier, such as rents, are worth paying more attention to and believes that rental costs will not peak

US Inflation Eases in January
Inflation decreasing but certain areas are too hot to handle - Photo by Luca Bravo / Unsplash

According to a recent government data release, rising rents and an increase in gasoline prices have helped to keep consumer prices elevated in the United States. Despite the consumer price index (CPI), a key gauge of inflation, decreasing from its decades-high levels, the numbers indicate that there are still certain areas of inflation that are proving difficult to control.

The CPI rose 6.4% in January from the previous year, which was a touch below December's figures but still significantly above the Federal Reserve's target of 2%.

The increase in the index for shelter was the largest contributor, accounting for almost half of the overall increase in the monthly index. Excluding the volatile food and energy components, the so-called core CPI rose 5.6% from January 2022, which was also the smallest increase in a year.

However, there is still much work to be done, according to President Joe Biden, and there could be setbacks along the way. According to Rubeela Farooqi of High Frequency Economics, there was only a modest improvement in annual inflation and in services inflation excluding volatile components and housing, reports AFP.

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Inflation in focus

This underlying measure of services costs is closely monitored by the Fed. For Fed officials, a slow decrease in inflation supports the higher-for-longer view on interest rates, which are currently at their highest since 2007.

Ryan Sweet of Oxford Economics warns that some stickier components, such as rents, are worth paying more attention to and believes that rental costs will not peak until the second half of this year, while wage growth remains strong and there is still pent-up demand for services spending.

While the easing in core inflation has been uneven, policymakers will likely continue to lift rates and keep policy restrictive for some time. Fed Governor Michelle Bowman also cautioned that it would likely be necessary to tighten monetary policy further to bring inflation down to the target goal.

In conclusion, despite the improvement in the inflation numbers, policymakers still have a long way to go in reducing inflation and bringing it down to the target level.

The recent data highlights the importance of paying attention to certain stickier components, such as rents, and the need for policymakers to continue to take necessary steps to bring inflation down to a manageable level.

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