US CPI data for January released, inflation falls less than market expectations

The US CPI data for January released today shows inflation cooling down further. From 6.5% in December, the annual inflation in January has fallen to 6.4%. For the first time, a new method to compute US CPI was used by the Bureau of Labor Statistics. The release of the January 2023 CPI data on Friday, February 14, 2023 marked the start of the transition to yearly weights.

A hotter-than-expected US inflation rate stoked worries of an even higher Federal Reserve for a longer period of time, causing US stock index futures to temporarily cross into negative territory on Tuesday. According to the CPI report from the Labor Department, monthly inflation increased by 0.5% in January compared to December, which led to an annual inflation slowdown of 6.4%, which was less than anticipated.

The US annual inflation rate decreased from 6.5% in December to 6.4% in January 2023, which was less than market expectations of 6.2%. Even so, it is the lowest reading since October of 2021, with food costs climbing 10.1% while energy prices rose 8.7%. In accordance with market expectations, the CPI increased by 0.5% from the previous month, with housing expenses accounting for over half of the increase. Even though inflation has begun to decline since peaking at 9.1% in June of last year, it is still more than three times higher than the Fed’s 2% target and continues to indicate a general increase in price levels, especially for services and housing.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.5 percent in January on a seasonally adjusted basis, after increasing 0.1 percent in December, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.4 percent before seasonal adjustment.

Also Read: US CPI data to be released on February 14 – Check new method for computation of January inflation

The US CPI for January was expected to surprise on the upside, encouraging the Federal Reserve to maintain its commitment to further rate hikes. Earlier, the December estimated CPI was revised to show that prices increased rather than decreased during the month, and the University of Michigan’s Consumer Sentiment report revealed that people are becoming increasingly concerned about inflation.

Those announcements came on the heels of a surprisingly strong jobs report: the United States added 517,000 jobs in January, and unemployment fell to 3.4%, the lowest rate in 53 years. The combination of these three data points is likely to reinforce the Federal Reserve’s view that tighter monetary policy should be extended further into the future, which may go against the market sentiments.

After a reading of 7.1% in November, the annual inflation in the United States fell for the sixth consecutive month in December 2022, to 6.5%, the lowest level since October 202. Markets have rallied on the back of cooling inflation and the hope that the Fed will turn dovish soon, with the S&P 500 up nearly 14% from its October lows.

The Dow gained 1.11%, the S&P 500 gained 1.15%, and the Nasdaq Composite gained 1.48% in regular trading on Monday, with ten of the 11 S&P sectors finishing higher, led by technology and consumer discretionary. US stocks also recovered losses from the previous week, when a chorus of Fed officials reaffirmed their commitment to fighting inflation with additional rate hikes, dashed hopes that the tightening cycle would end soon. Market observers, analysts, investors and traders closely watch the US CPI data to feed into their assessments of where monetary policy is headed.