Gloomy news this morning from the U.S. Bureau of Labor Statistics.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics
reported today. Over the last 12 months, the all items index increased 7.5 percent before seasonal adjustment.
Increases in the indexes for food, electricity, and shelter were the largest contributors to the seasonally adjusted all items increase.
The Wall Street Journal calculates the impact on the household budget.
The average U.S. household is spending an additional $250 a month because of inflation that is rising at its fastest rate in 40 years, a new economic analysis showed.
Of course, the impact is not felt uniformly. The WSJ cites research demonstrating the differential effects of higher inflation of various demographic groups.
CNBC reports that the new numbers will likely generate an interest-rate hike.
Consumer prices surged more than expected over the past 12 months, indicating a worsening outlook for inflation and cementing the likelihood of substantial interest rate hikes this year.
From that flows this.
That combination of higher food and housing prices “underlines our view that a rapid cyclical acceleration in inflation is underway and, with labor market conditions exceptionally tight, it is unlikely to abate any time soon,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.
“While we still expect more favorable base effects and a partial easing of supply shortages to push core inflation lower this year, this suggests it will remain well above the Fed’s target for some time,” he added.
The burst in inflation has muted the sizeable earnings growth workers have seen. Real average hourly earnings rose just 0.1% for the month, as the 0.7% monthly gain in wages was almost completely wiped out by the 0.6% inflation gain.
More from the Associated Press.
Thursday’s report will intensify pressure on the Fed and its chair, Jerome Powell, to tighten credit to try to slow the economy enough to cool inflation. Powell signaled two weeks ago that the central bank would likely raise its benchmark short-term rate multiple times this year, with the first hike almost surely coming at its next meeting in March. Given the latest inflation data, some economists and investors say the Fed may decide to raise its key rate in March by one-half a percentage point, rather than its typical quarter-point hike.
Over time, those higher rates will raise the costs for a wide range of borrowing, from mortgages and credit cards to auto and business loans. That could cool spending and inflation, but for the Fed, the risk is that in steadily tightening credit, it could trigger another recession.
We liked it better when inflation was transitory.