Inflation's cooldown slows, as prices rose 6.4% in January

The Consumer Price Index shows shelter inflation is becoming a driver of price increases.

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Inflation’s cooldown slowed in January, as higher prices for shelter became a bigger driver of increases.

On Tuesday, the Consumer Price Index from the U.S. Bureau of Labor Statistics shared the following data on pricing for January 2023:

On a monthly basis, inflation rose 0.5%. This came after prices ticked up a narrow 0.1% in December.

On an annual basis, inflation rose 6.4% from the same month of 2022. While this is the smallest annual increase since October 2021, it is down only slightly from the 6.5% annual rate in December.

Core inflation, which leaves out volatile food and energy indices, rose 5.6% from a year ago, which was the smallest 12-month increase since December 2021. This was down from 5.7% in December.

Food inflation continued to rise, as four of six major categories recorded increases. The food at home index, which includes groceries, rose 11.3% on an annual basis. There was some moderation in this category, as it was down from 11.8% in December.

Notable price increases were observed in shelter, which drove the increase in core inflation. Apparel and household furnishings also saw prices tick up.

What’s the takeaway?

Stubborn inflation:After three months of pronounced cooling, inflation’s downward slope flattened in January. It’s just one month of data, but shows that the path to bringing prices down may not always be a smooth one.

Adding that inflation remains up 14.4% on a two-year basis, GlobalData Managing Director Neil Saunders said the report shows there is a "clear risk" that inflation will continue to dominate in 2023. This is being driven in part by continued spending, even in the face of higher prices.

"There have been some areas of modest improvement since last month, but most shoppers are still firmly in money-saving and budgeting mode," Saunders said. "One of the issues, however, is that despite some changes in behavior overall demand remains fairly strong. While consumers are cutting back at the margins, they are still spending which is not allowing the economy to cool and inflation to wither."

Economists have warned of the risk that inflation could rise again, even after it begins to descend. That’s not the trend being observed here, but the slowdown will get the attention of the Federal Reserve’s top committee as they weigh their next moves on interest rates.

Shelter rising: Inflation is also moving to other categories. For months, food and gas drove the Consumer Price Index increases. Food is coming down, while gas prices only increased 1.5% for the month. But now, it is shelter, which includes rent, that is proving to be a major factor in inflation. This could continue to impact discretionary spending, as people who are paying more for rent will try to save money in other areas.

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