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January CPI Report: Inflation remains stubborn as shelter prices weigh on consumers

AInvestTuesday, Feb 13, 2024 2:39 pm ET
1min read

In January, the Consumer Price Index (CPI) saw a modest increase of 0.3% as reported by the Bureau of Labor Statistics, culminating in a 3.1% rise on a year-over-year basis, a slight decrease from December's 3.4%. The increase was significantly driven by shelter prices, which rose by 0.6% for the month, accounting for more than two-thirds of the overall increase in CPI. This jump in shelter costs highlights the ongoing challenge of high living expenses, contributing to a 6% rise in shelter prices over the past 12 months.

The recent news propelled yields to their highest levels in 2024, exerting pressure on the stock market. This development also disrupted expectations for a Federal Reserve rate cut. The combination of the unexpectedly high inflation report and the robust January jobs report has diminished the likelihood of the Fed adjusting rates in March. According to CME Fed Funds Futures, there's a 92% probability that the Fed will maintain rates at 5.25-5.50%. The likelihood of a rate cut in May has decreased to 34%, a significant drop from yesterday's 60%. Overall, the CME Fed Funds Futures now anticipate 3-5 rate cuts, a shift towards the lower end of expectations and more in line with the Federal Reserve's projections, compared to 4-6 rate cuts expected previously.

The report also highlighted a more-than-expected rise in inflation, largely due to the persistent increase in shelter prices, which continue to place a heavy burden on consumers. The core CPI, which excludes the more volatile categories of food and energy, accelerated by 0.4% in January, maintaining a 3.9% increase from the previous year, unchanged from December. These figures surpassed the anticipated increases, indicating a stubbornness in underlying inflation pressures despite overall inflation trending downwards.

Despite the general downward trend in inflation, with a year-over-year CPI increase slowing down to 3.1%, consumers continue to face the impact of rising costs, particularly in essential areas such as housing. The energy sector, however, saw a decline, with the energy index dropping by 0.9% for the month, led by falling gasoline prices. As inflation shows signs of moving in the right direction, according to Lisa Sturtevant, chief economist at Bright MLS, it's crucial to understand that this deceleration doesn't imply falling prices but rather a slower rate of increase, leaving consumers still grappling with the cost of living pressures.


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