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Inflation cools slightly in January but falls less than expected by experts


The CPI fell one tenth in January to 6.4% compared to last year and shows signs of slowing down its decline in recent months despite the pronounced rises in interest rates.

By Christopher Rugaber -

The Associated Press

The prices of goods and services in the United States increased by 0.5% in January compared to the previous month, as reported by the Labor Department on Tuesday, but inflation fell one tenth, to 6.4%, compared to the rate of just one year ago. .

This drop is lower than that forecast by the experts, who predicted that it would reach 6.2%, which shows a slowdown in the falls of previous months.

Cashiers at a Walmart supermarket in North Bergen, New Jersey, on February 9, 2023. Eduardo Muñoz Alvarez / AP

This is the seventh consecutive year-on-year slowdown, which leaves the index well below the maximum of 9.1% registered in June.

Even so, the rate continues to be well above the 2% target of the Federal Reserve (Fed), which has approved an aggressive rise in interest rates in recent months to try to put a stop to it.

“The process of reducing inflation has begun,” Federal Reserve Chairman Jerome Powell said last week, but “this process is likely to take quite some time.

It's not going to be, we don't think, smooth, it's probably going to be bumpy."

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Median gasoline prices, which had fallen in five of the six months through December, probably rose about 3.5% in January, according to an estimate by Nationwide.

Food prices are also expected to rise, albeit more slowly than the skyrocketing rises of last summer and fall.

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By contrast, the prices of clothing and plane tickets have barely changed from December to January.

And economists estimated that hotel room prices fell sharply.

Overall, the government's inflation report showed a continuing pattern that has emerged in recent months: The prices of goods, from furniture and clothing to toys and sporting goods, are falling.

On the other hand, the prices of services (restaurant meals, shows, dental care, etc.) are rising faster than before the pandemic and threaten to keep inflation high.

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Products have become cheaper as supply chain problems that had driven up prices after the outbreak of the pandemic in 2020 have been resolved.

And Americans are shifting much of their spending toward services, having splurged on items like furniture and fitness equipment during the pandemic.

However, median wages are rising at a rapid pace of around 5% from a year ago.

These wage increases, spread throughout the economy, are likely inflating the prices of labor-intensive services.

Powell has often pointed to strong wage increases as a factor driving up utility prices and keeping inflation high, even as other categories like rent are likely to slow their prices.

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The Joe Biden administration last week calculated a measure of wages in service industries excluding housing, the sector of the economy that Powell and the Fed follow most closely.

The Administration's Council of Economic Advisers found that wages for workers in those industries, excluding managers, shot up 8% last January from a year earlier, but have since slowed to an annual rate of about 5 %.

This suggests that services inflation could slow down soon, especially if the trend continues.

Even so, wage increases at that level are still too high for the Fed's liking.

Central bank officials would prefer to see wage growth around 3.5%, which they see as consistent with their 2% inflation target.

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A key question for the economy this year is whether unemployment would have to rise significantly to achieve that slowdown in wage growth.

Powell and other Fed officials have said curbing high inflation would require some "pain" for workers.

Higher unemployment often reduces the pressure on companies to pay higher wages and salaries.

However, for now, the labor market remains historically very strong.

Earlier this month, the government reported that companies created 517,000 jobs in January, almost double the number in December.

The unemployment rate fell to 3.4%, the lowest level since 1969. Job offers remain high.

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Powell declared last week that the jobs data was “certainly stronger than anyone I know of expected” and suggested that further rate hikes than anticipated may be necessary if this very positive data holds.

Other Federal Reserve officials last week underscored their belief that more interest rate hikes are on the way.

The Federal Reserve expects another two quarter-point rate hikes at its March and May meetings.

Those increases would raise its reference rate to a range of 5% to 5.25%, the highest level in 15 years.

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At its last meeting on February 1, the Federal Reserve raised rates by a quarter point, after raising half a point in December and four previous three-quarter point hikes.

Financial markets expect two more hikes this year and don't expect the Fed to reverse course and cut rates until sometime in 2024. For now, those expectations have ended a tussle between the Fed and Wall Street investors, who They previously bet that the Fed would be forced to cut rates in 2023, as inflation falls faster than expected and the economy weakens.

Source: telemundo

All news articles on 2023-02-14

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