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Core Inflation May Fall to 5-Year Low 02/13 06:05
A measure of inflation may have fallen to a five-year low in January as
rental costs have cooled, a sign that some prices are moderating while
Americans continue to grapple with a big rise in overall prices in the past
five years.
WASHINGTON (AP) -- A measure of inflation may have fallen to a five-year low
in January as rental costs have cooled, a sign that some prices are moderating
while Americans continue to grapple with a big rise in overall prices in the
past five years.
Inflation is forecast to have fallen to a 2.4% annual rate in January from
2.7% in December in the latest government report on consumer prices to be
issued Friday. That would be the lowest rate in nine months. Core prices, which
exclude the volatile food and gas categories, are expected to decline to 2.5%
from 2.6%, the lowest in nearly five years, according to data provider FactSet.
On a monthly basis, inflation may show signs of remaining elevated: Overall
and core prices are expected to rise 0.3% in January from December, a pace that
if maintained for several months would start to push annual inflation higher.
Friday's report may point to cooling inflation, but it comes after the cost
of food, gas, and apartment rents have soared since the pandemic, with consumer
prices about 25% higher than they were five years ago. The increase in such a
broad range of costs has become a high-profile political issue under the rubric
of "affordability."
If inflation gets closer to the Federal Reserve's target of 2%, it could
allow the central bank to cut its key short-term interest rate further this
year, as Trump has repeatedly demanded. High borrowing costs for things like
mortgages and auto loans have also contributed to a perception that many
big-ticket items remain out of reach for many Americans.
In January, economists expect that gas prices will have declined, while the
cost of groceries could rise again after they jumped in December. Overall
prices could increase by more than expected, economists say, because costs
often rise more in January than other months as companies reset their prices at
the beginning of the year.
Inflation surged to 9.1% in 2022 as consumer spending soared at the same
time supply chains snarled in the wake of the pandemic. It began to fall in
2023 but leveled off around 3% in mid-2024 and has since barely improved.
Inflation cooled a bit this fall, though some of that reflected the
disruptions of the six-week government shutdown in October. The shutdown
disrupted the government's data collection and led them to estimate price
changes in November for housing that most economists say artificially lowered
inflation that month.
At the same time, measures of wage growth have declined in the past year or
so as hiring has cratered. With companies reluctant to add jobs, workers don't
have as much leverage to demand raises. Smaller pay increases can reduce
inflationary pressures as companies often raise prices to offset higher wages.
More modest wage growth is a big reason that many economists expect
inflation to continue easing this year.
"We're not expecting inflation to start up again by any stretch," said Luke
Tilley, chief economist for Wilmington Trust.
Many businesses are still eating some tariff costs and economists expect
they may raise prices more in the next few months to offset those extra
expenses. Still, most forecast that inflation will decline further by the
second half of the year and drop closer to the Fed's 2% target by the end of
2026.
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