January Inflation Exceeds Fed Expectations

After a few economically successful months, the US has had room for optimism. Job data has blown past any expectation, insinuating a recovering economy. Other positive indicators have shown us that expecting a quality of life increase isn’t just wishful thinking. However, January’s inflation data has soured the mood slightly.

While it’s nothing to lose sleep over, January’s inflation data has shown that the US is not out of the woods. It has shown an increase in year-on-year data, as well as compared to the previous month. And while, of course, a degree of inflation is welcome, it’s blown past the Fed’s desired rate. And that’s even worse news when we consider Fed’s new initiative to halt inflation.

The biggest concern is the  Personal Consumption Expenditures index. It has shown an increase of 5.4% compared to the year prior. Additionally, it has grown 0.6% from December. For reference, December’s growth was only 0.2% compared to the previous month.

Using the Core PCE index, the Fed has seen an annual increase of 4.7% for the past 12 months. For more accuracy, the data ends in January instead of December. The index seems to be a fair measurement, as it excludes some of the more volatile prices, thus showing a more stable data set.

Economists, however, expected a sighter increase than that. The hope was that it would land closer to 4.3%, continuing the easing from the past two months.

However, even though that’s far from welcome, there’s some good news to improve the mood. Namely, it seems that goods prices have dropped by 0.7% compared to December. As such, the impact of rising inflation on the consumer basket should be smaller than what just inflation data displays. The US still seems to be heading toward recovery, although the road isn’t yet clear.