The annual CPI was expected to decline to 6.2% from 6.5% in December while the Core CPI, which excludes volatile food and energy prices, was seen at 5.5% from 5.7%. On a monthly basis, the CPI was forecast at 0.5% while the Core CPI was expected at 0.4%.
Prices for a variety of products and services increased by 6.4% over the past 12 months, but down significantly from a pace of 6.5% year-over-year, according to consumer price index data that was recently released on Tuesday.
However, prices rose by 0.5% in January versus a slower 0.1% rise in December on a month-over-month basis.
For the second consecutive month, the Core Consumer Price Index—a gauge of inflation that excludes volatile food and energy prices—rose by 0.4%. That puts the annual core index inflation rate at 5.6%.
Interpretation
The widely held view of the newly disclosed information was generally pessimistic, but when viewed in context, the reading emerges as neutral.
Core CPI rose for the second month in a row, which means that the prices of goods and services that are included in the calculation of the index, but excluding food and energy, have increased for two consecutive months. This suggests that inflation is still on the rise.
However, the fact that the rate of increase has slowed slightly compared to the previous year (disinflation – a reduction in the pace of inflation) suggests that the factors driving inflation may be easing or that other factors are beginning to counteract them.
To put it simply:
Year-over-year: Inflation fell 6.4% from 6.5% (disinflation)
Month-over-month: Inflation rose 0.5% from 0.1% in December (inflation)
Regardless of the data, everything is still expensive: food, gas, housing, etc.
The Federal Reserve
The Federal Reserve monitors the CPI report closely. If the numbers are higher than expected, analysts will hypothesize that the Fed will strengthen its position to keep fighting inflation.
However, the Fed has already indicated in its most recent FOMC meeting that they will keep raising rates to tame inflation. The Fed also made it very clear that it has no intention of stopping rate increases too soon and that it intends to move more in the direction of adopting an aggressive stance than to risk being too lax on inflation.
Final Thoughts
CPI is a widely used measure of inflation, but it is not the only indicator. CPI measures changes in the prices of a fixed basket of goods and services, which may not fully reflect the purchasing patterns or experiences of every individual or group. Other inflation measures, such as the Producer Price Index (PPI), which measures price changes for goods and services at the wholesale level, may also provide additional insight into inflation trends.
Higher inflation can be a concern for individuals and the economy at large because it reduces the purchasing power of money, leading to higher prices for goods and services. It can also affect investments and the stock market, as investors may adjust their expectations and strategies based on changing inflation rates. However, it is worth noting that short-term fluctuations in inflation are not always indicative of long-term trends, and inflation rates can be influenced by a wide range of factors, such as changes in supply and demand, global economic conditions, and government policies.