Inflation stayed stubbornly high in January, with the Federal Reserve’s preferred gauge showing little relief from the ongoing price pressures that have been plaguing the economy.
The personal consumption expenditures (PCE) index, which is the Fed’s preferred measure of inflation, rose by 0.6% in January, matching the increase seen in December. On an annual basis, the index was up 6.1%, marking the highest year-over-year increase since 1982.
These numbers are likely to be concerning for policymakers at the Fed, who have been grappling with an inflation surge that has been driven by supply chain disruptions, high demand, and rising energy prices. The central bank has been under pressure to raise interest rates to curb inflation, but has so far held off on taking action as it seeks to support the economic recovery from the pandemic.
The Fed has described the current inflationary pressures as “transitory,” meaning that they are expected to be temporary and eventually subside as supply chain issues are resolved and demand moderates. However, the persistence of high inflation in January suggests that these pressures may be more entrenched than previously thought.
One of the key drivers of inflation in January was energy prices, which rose by 2.4% during the month. Gasoline prices were up 6.6%, while electricity and natural gas prices also increased. Food prices were up 1.3% in January, marking the largest monthly increase since May 2020.
Other categories that saw price increases in January included housing, medical care, and transportation. These price pressures are likely to continue to weigh on consumers’ wallets and could dampen economic growth if they persist.
Overall, the high inflation readings in January are likely to keep the Fed on high alert as it monitors price trends in the coming months. Policymakers will be closely watching data on consumer spending, wage growth, and price pressures to gauge the strength of the inflationary pressures and determine if further action is needed to address them. In the meantime, consumers should be prepared for higher prices at the pump, the grocery store, and other goods and services as inflation remains sticky in the near term.