Consumer prices rose 7.5% in the 12 months ending in January, according to data released Thursday by the Labor Department, climbing more than economists expected amid an inflationary surge that’s pushed the Federal Reserve to ease its pandemic-era stimulus more quickly than previously anticipated.
Overall prices rose 0.6% from December—higher than the 0.4% economists were expecting and the previous month’s increase of 0.5%. On a yearly basis, prices jumped 7.5% last month, the largest annual increase since February 1982.
The overall increase was the result of broad gains across food, electricity and shelter prices, the government said, pointing to a 0.9% monthly increase in the price of energy as a main driver.
Stock futures dropped almost immediately after the hot inflation report, with the S&P 500 trading trading down about 0.8% by 9:40 a.m ET.
Trillions of dollars in unprecedented government spending helped keep the economy afloat during the pandemic, but levels of historically high inflation have rattled the market in recent months—and even more so in the new year.
After rising 27% in 2021, the benchmark S&P 500 index is down more than 4% so far this year Bank of America and Morgan Stanley are among the Wall Street investment banks that have warned inflation—and not the pandemic—is now the biggest risk to the market.The Federal Reserve, meanwhile, has started to taper, or reduce, its accommodative monetary policy efforts in an effort to combat rising prices, and it forecasts three interest rate hikes this year.
Last month, the International Monetary Fund downgraded its U.S. economic growth projections from 5.2% to 4%, citing, among other things, the Federal Reserve’s removal of pandemic-era stimulus.
What To Watch For
A detailed summary of last month’s Fed meeting is set to be released next Wednesday and should provide more clarity on how officials are navigating the decades-high surge in inflation, with the central bank’s next two-day policy meeting slated to end on March 17.
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The index gained 0.6% month-over-month, surpassing the average forecast of a 0.5% leap. The print also shows inflation holding at December’s 0.6% pace. The one-month print can offer more insight into how inflation will trend moving forward, since the year-over-year comparison still includes months where vaccines were only just rolling out and many economic restrictions were still in place.
Core CPI, which cuts out volatile food and energy prices, rose 0.6% through January, matching December’s rate and overshooting the 0.5% forecast. The core index is largely viewed as a more accurate measure of broad inflation trends, and the lack of a month-over-month deceleration signals supply is still far from matching demand.
Fuel oil prices rose the most through January, notching a 9.5% gain after falling 2.4% the month prior. Electricity followed with a 4.2% price surge. Used car and truck prices rose 1.5% last month, slowing from December’s 3.3% gain but still marking a sizeable uptick compared to pre-pandemic trends.
The report joins other data revealing how the economy fared through the worst virus wave yet. Daily infections peaked at roughly 1.4 million on January 10 and have since plunged to an average of 225,000. Last week’s jobs report dashed fears that surging case counts would throw off the recovery, as the US added far more jobs than expected and labor force participation swung higher.
With infections steadily declining, January might represent the worst month of the virus’ economic fallout in 2022, barring the rise of further variants.