What the New Inflation Data Mean, According to One CU Economist

WASHINGTON–Inflation cooled again in January, although it remained higher than many had expected and hoped.

According to the new Labor Department data, consumer prices were up 3.1% in January from one year earlier, vs. a December gain of 3.4%. That marked the lowest reading since June.

The Bureau of Labor Statistics numbers further found core prices, which exclude food and energy items, were up 3.9%, which was equal to December’s gain and the lowest since mid-2021.

From a month earlier, overall prices were up 0.3%, and core prices were up 0.4%—larger gains many had predicted.

"Headline inflation over the previous 12 months declined in January although monthly prices came in a little higher than expected,” said Dawit Kebede, senior economist with America’s Credit Unions. “A combination of lagging indicator for rent and high price increase for lodging away from home led to a large increase in shelter price contributing for two-thirds of the overall monthly increase in prices. Energy and commodity prices continued their decline for several months in a row. Inflation is heading in the right direction but the Federal Reserve needs more data points to change policy direction with confidence." 

What Data Mean for Rates

Of interest to many, including credit unions, is what the data will mean for the future of any rate cuts by the Fed. The New York Times noted interest-rate futures, which before the report implied the central bank would probably begin cutting rates by its May meeting, now suggest a June start date is more likely.

Following its most recent meeting Fed officials indicated they believe inflation is now under control. Fed Chair Jerome Powell said the country has seen six months of good inflation data, but it is now seeking more evidence that “confirms what we think we’re seeing and…gives us confidence that we’re on a path to, a sustainable path down to 2% inflation.”