Sunday, March 26, 2023
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CPI shows U.S. inflation still sticky

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The numbers: The cost of living rose 0.5% in January — the biggest increase in three months — in a possible sign that U.S. inflation might not slow as quickly as hoped.

Economists polled by The Wall Street Journal had forecast a 0.4% increase in the consumer price index last month.

Consumer prices also rose 0.1% in December instead of declining, revised government figures show.

The annual rate of inflation, meanwhile, slowed again to 6.4%.

U.S. stocks rose after the report.

The so-called core rate of inflation, which omits food and energy, advanced 0.4%. That was above the Wall Street forecast of 0.3%.

The increase in the core rate over the past 12 months tapered to 5.6% from 5.7%.

The Fed views the core rate as a more accurate predictor of future inflation trends.

One caveat: The government revises its formula for seasonal adjustments in January each year and sometimes that can lead to unusually large price changes.

Big picture: High inflation hasn’t gone away and it isn’t going to disappear fast.

If the Fed sees evidence prices are steadily declining, the central bank could remove its boot from the neck of the economy. The Fed has been raising interest rates aggressively to tame inflation

Yet if inflation gets stuck well above the Fed’s 2% target, say 4% to 5%, the bank could raise rates even higher than planned and keep them high for a while. Higher borrowing costs slow the economy, raise unemployment and raise the risk of recession.

Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open higher in Tuesday trades.

The yield on the 10-year Treasury note
fell to 3.65%.


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