by Staff Writers, AdvisorAnalyst
- In January, the headline CPI growth (a measure of inflation) was 6.4%, which is slightly lower than the 6.5% in December.
- Food prices are still high, with a 10.1% increase, while energy prices have gone up by 8.7%, due to higher gasoline prices.
- Excluding food and energy, the "core" inflation rate decreased slightly to 5.6% year-over-year.
- Growth in rent costs accounted for most of that monthly increase, while car insurance and apparel also posted larger monthly increases in January.
- CPI basket (excluding shelter) impacted by abnormally high inflation over the past 3 months decreased from 80% in early 2022 to 50% in January.
- The Fed's preferred measure for CPI, which excludes food, energy, and rent inflation, remained unchanged at an annualized 4.1% over the last three months to January, but it has come a long way from over 9% in summer 2022.
- Consumer spending has continued to soften, with a decline in goods purchases and a halt in spending on services.
- The overheating labor market is the key risk to the outlook, which seems at odds with other indicators suggesting domestic activity losing steam.
- Job growth has slowed down, and wage growth has also decreased outside the leisure and hospitality industry.
- The Fed is expected to raise interest rates by 25 basis points (0.25%) in March, which would be their last move in this cycle, bringing the terminal rate up to 5% after a total of 475 basis points of rate hikes. This is expected to further slow down spending and inflation later this year.
Source: Claire Fan, Economist, RBC Economics
