US inflation higher than forecast

The US consumer price index (CPI) in January rose more than analysts expected, reducing expectations that the Fed will soon cut interest rates.

Data released by the US Department of Labor on February 13 showed that the US CPI increased 0.3% in January and increased 3.1% compared to the same period last year, down from 3.4% in December.

However, the figure was higher than forecasts from economists surveyed by Dow Jones , who expected a January increase of 0.2% and an annual increase of 2.9%.

The newly released CPI figures immediately affected financial markets. Major US stock indexes fell sharply on concerns that interest rate cuts would not be implemented soon. The Dow Jones Industrial Average fell more than 500 points in early trading on February 13, its biggest drop in nearly a year. The S&P 500 and Nasdaq also fell more than 1%.

The cryptocurrency market also fluctuated sharply. Bitcoin - the largest cryptocurrency by market capitalization - fell nearly 3%, from over $50,000 to $48,600 in just a few minutes.

Excluding food and energy prices, the core CPI rose 0.4% in January and was up 3.9% from a year earlier, unchanged from December. Analysts had forecast increases of 0.3% and 3.7%.

Home prices, which account for about a third of the CPI, contributed the bulk of the increase in the first month of 2024. The index rose 0.6% on the month and 6% from a year ago.

Food prices also edged higher, rising 0.4% on the month. Meanwhile, the energy price index fell 0.9%, largely due to a 3.3% drop in gasoline prices.

“Inflation is generally moving in the right direction,” said Lisa Sturtevant, chief economist at Bright MLS. “But it’s important to remember that lower inflation doesn’t mean prices for most things are falling, it simply means prices are rising more slowly. Consumers are still feeling the pinch of higher prices for things they buy regularly.”

The January CPI data comes as the Federal Reserve struggles to find the right balance for monetary policy in 2024. While markets are expecting aggressive rate cuts this year, Fed officials have been cautious in their statements, focusing on the need for numbers and assessments rather than a specific roadmap.

Policymakers, including Fed Chairman Jerome Powell, said the strength of the US economy gives the Fed more leeway, as it does not have to worry about higher interest rates hurting growth.

Even as prices continued to rise, inflation-adjusted hourly earnings rose 0.3% for the month. However, on a weekly basis, real earnings fell 0.3%. Real average hourly earnings rose 1.4% from a year ago.

Fed officials expect inflation to fall toward their 2% target, largely due to expectations that housing prices will slow this year. But the January surge could be a problem for a central bank looking to ease monetary policy, which is at its tightest in more than two decades.

"The widely anticipated CPI report was a disappointment for those expecting inflation to ease," said Quincy Krosby, global strategist at LPL Financial. "Overall the numbers were hotter than expected, which certainly suggests the Fed will need more data before starting its rate-cutting cycle."

Core inflation, which Fed officials believe is a better indicator of long-term trends, didn't even decline in January as housing prices remained higher than expected.

Minh Son (according to CNBC)

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