The number will not change the path of Federal Reserve interest rate hikes.
While a lot of the higher prices for long-lived goods bought during the pandemic when people were unable to shop in person or visit restaurants has reversed itself, the shift to services spending on items like eating out, getting a haircut or taking a pet to the vet has seen those costs rise. How quickly they might come down or stop growing is an open question.Then there are wages. Employee pay surged during the pandemic and while the pace of its growth has slowed, it is still rising at more than twice the 2% annual rate of inflation the Fed has targeted as its goal. The economy added 517,000 jobs in January, although that number may have been exaggerated by seasonal and other adjustments.The CPI report said that real wages fell 1.8% from a year ago.Powell said the Fed would rely on incoming data to decide how restrictive monetary policy will be but he has also acknowledged the volatility of the data ever since COVID-19 hit the economy nearly three years ago.“I think there are a lot of cross-currents in the data and it’s hard to pick apart the bones of them,” says David Page, head of macroeconomic research at AXA IM.“To me, it looks like several sectors of the economy (will) contract over the next several months,” Page says, but he added that the country may not see two consecutive quarters of economic contraction as is usually the case during a recession.Also Tuesday, the NFIB monthly survey of small businesses saw its index increase a half point to 90.3 in January to 90.3, with fewer owners, 26% compared to 32% in December, reporting inflation as their most important concern. The percentage of owners expecting better business conditions over the next six months rose 6 points from December.“While inflation is starting to ease for small businesses, owners remain cynical about future business conditions,” said NFIB Chief Economist Bill Dunkelberg. “Owners have a negative outlook on the small business economy but continue to try to fill open positions and return to a full staff to improve productivity.”James Knightley, chief international economist for ING, says that while housing was a large contributor to the January increase in inflation, anecdotal and real-time data suggests that housing costs have peaked and that rents in major cities are easing.”There’s evidence that is moderating,” Knightley says. As for the Fed and Powell, he adds, “I think they’ll be reasonably happy.”
This aeticle was originally published US News.