Inflation fell in January, but more slowly than economists hoped
Consumer inflation moderated in January, yet remained higher than many economists had expected, driven by rising prices for housing, gasoline and natural gas.
The Consumer Price Index, a broad basket of good and services, rose at a 6.4% annual rate in January, the Labor Department reported Tuesday. Economists had expected the index to increase at a rate of 6.2%.
Core inflation, which excludes volatile food and energy costs, increased at an annual rate of 5.6%, also higher than economists had predicted.
The figures mark a slight deceleration from December, when the headline and core CPI increased 6.5% and 5.7%, respectively.
Housing costs were a major driver of January's inflation, contributing more than half of the price increases. The Fed is optimistic that these costs will come down soon, because the measure the Labor Department uses for housing prices lags real-world prices, which have been falling in recent months.
"While this is the smallest year-over-year price increase since October 2021, today's report suggests that the downward trend in inflation may be bumpier than had hoped," Lisa Sturtevant, chief economist at Bright MLS, said in an email.
She added, "It means that the Federal Reserve will push forward with rate hikes through the spring, which will increase borrowing costs for consumers and businesses."
Increases in the costs of groceries, apparel, vehicle insurance, furniture and recreation pushed the CPI higher, offset by drops in used vehicle prices and airfares.
"For Fed officials, a slow grind down in inflation only supports the higher-for-longer view on interest rates," Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note. "Policymakers have more work to do in lowering inflation back towards target and are likely to continue lifting rates and will keep policy restrictive for some time."