US inflation slows but remains elevated in sign that price pressures are easing only gradually

WASHINGTON — Consumer inflation in the United States cooled last month yet remained elevated in the latest sign that the pandemic-fueled price surge is only gradually and fitfully coming under control.

Tuesday’s report from the Labor Department showed that the consumer price index rose 0.3% from December to January, up from a 0.2% increase the previous month. Compared with a year ago, prices are up 3.1%.

That is less than the 3.4% figure in December and far below the 9.1% inflation peak in mid-2022. But the latest reading is still well above the Federal Reserve’s 2% target level at a time when public frustration with inflation has become a pivotal issue in President Joe Biden’s bid for re-election.

Excluding volatile food and energy costs, so-called core prices climbed 0.4% last month, up from 0.3% in December. On a year-over-year basis, core prices were up 3.9% in January, the same as in December. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed.

Tuesday's report showed that the drivers of inflation have decisively shifted from goods — like used cars, gasoline and groceries, which are now falling in price or rising much more slowly — to services, including hotel rooms, restaurant meals and medical care. That shift could raise concerns for the Fed, because services inflation typically takes longer to cool.

At his most recent news conference, Fed Chair Jerome Powell indicated the central bank's policymakers would like to see services inflation ease further before starting to cut their key interest rate.

In the 25-county region that includes Long Island, consumer prices rose 3.1% last month compared with January 2023, according to William J. Sibley, regional commissioner of the federal Bureau of Labor Statistics, which produces the Consumer Price Index.

He attributed January’s rise in prices to the increased cost of items besides food and energy, such as housing. Rents in the metropolitan area rose 4.6%, year over year, he said.

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Some economists cautioned against assigning too much weight to January’s inflation data, noting that many companies impose annual price increases in the first month of the year, imparting a temporary boost to January’s figures. The government seeks to seasonally adjust the data to account for such trends but doesn’t always do so perfectly.

A raft of forward-looking data, in fact, suggests that inflation will continue to cool. The pace of wage growth has slowed, which reduces the pressure on companies to raise prices to offset higher labor costs. And consumers and business owners collectively expect lower inflation in the coming months and years, surveys show, a trend that can itself hold down price increases.

From December to January, average national gas prices tumbled 3.3%, the government said. Yet so far this month, the average price has climbed higher, rising 15 cents to $3.23 a gallon as of Tuesday, according to AAA.

Grocery prices rose 0.4% from December to January, the biggest such rise in a year, though compared with 12 months earlier, food prices are up just 1.2%.

But the costs of services — including auto insurance, apartment rents, and concert tickets — are still rising faster than they did before the pandemic and keeping overall inflation persistently high. The cost of car insurance has soared more than 20%, on average, compared with a year ago.

With James T. Madore