The CPI is on the Rise
The Consumer Price Index information was released today showing a higher than expected rate of inflation in January than expected.
The Department of Labor reported the following:
“On a seasonally adjusted basis, the CPI-U increased 0.4 percent in January. The indexes for food and for energy each advanced 0.7 percent, following increases in December of 0.1 and 1.7 percent, respectively. The index for all items less food and energy rose 0.3 percent, following increases of 0.2 percent in each of the preceding nine months. The January advance reflects larger increases than in December in the indexes for apparel, for medical care, for recreation, for education and communication, and for other goods and services.”
The overall increase in the Consumer Price Index over the passed 12 months was 4.3%. Seasonally adjusted special indexes on energy and food costs alone rose 0.7% last month. On an annual basis, food increased 4.9% while energy skyrocketed with an increase of 19.6%.
Inflation has been a secondary expressed concern of the Federal Reserve, as the primary goal at this point is to stave off recession and promote overall economic growth. Continued rate cuts are still expected, despite the higher than expected CPI. Data on the pricing conditions might cause upcoming rate cuts to be more modest, however.
The FOMC is more comfortable with an annual CPI increase closer to 2%. The data showing twice as much price inflation limits the size of upcoming rate cuts. It is doubtful that the Fed will keep rates the same at the next meeting in mid-March.
Oil prices are now up above $100 per barrel, starting yesterday. The average weekly earnings of workers fell by 0.5%, which indicates that income is not adjusting to inflation. That is bad news.
Housing starts increased slightly by a very modest 0.8%. Investors were hoping for a larger number here.
The news is not encouraging in terms of consumer spending. With prices rising and income staying the same or getting lower, consumer confidence is likely to continue to falter. Future rate cuts have to be done with extreme caution. The Fed has a difficult decision to make next month with slowing economic growth and inflation problems to consider.
