U.S. inflation eased again in January, but some price pressures remain stubbornly high

The pace of U.S. consumer price increases eased again in January, but some pressures remain stubborn and are could keep inflation higher for longer.

The pace of consumer price increases eased again in January, the latest sign that the high inflation that has gripped Americans for two years is slowing.

At the same time, Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain stubborn and are likely to keep inflation high well into this year.

The government said Tuesday that consumer prices rose 6.4 per cent in January compared with 12 months earlier, down from 6.5 per cent in December. It was the seventh straight year-over-year slowdown and well below a recent peak of 9.1 per cent in June. Yet it remains far above the Federal Reserve’s two per cent annual inflation target.

And on a monthly basis, consumer prices increased 0.5 per cent from December to January, much higher than the 0.1 per cent rise from November to December. More expensive gas, food and clothing drove up inflation in January.

The Fed has aggressively raised its benchmark interest rate in the past year to its highest level in 15 years in its drive to get rampaging inflation under control. The Fed’s goal is to slow borrowing and spending, cool the pace of hiring and relieve the pressure many businesses feel to raise wages to find or keep workers. Businesses typically pass their higher labor costs on to their customers in the form of higher prices, thereby helping fuel inflation.

So far, most of the slowdown in inflation reflects freer-flowing supply chains and sinking gas prices. But the Fed’s rate hikes — eight since March of last year — have had no discernible effect on America’s job market, which remains exceptionally strong.

The unemployment rate has dropped to 3.4 per cent, the lowest level in 53 years, and job openings remain high. The strength of the job market has, in turn, helped support consumer spending, which underpins the bulk of the U.S. economy.

Average wages are rising at a brisk pace of about five per cent from a year ago. Those pay gains, spread across the economy, are likely inflating prices in labor-intensive services. Powell has often pointed to robust wage increases as a factor that’s driving up services prices and keeping inflation high even as other categories, like rent, are likely to decelerate in price.