January Inflation Comes in Higher Than Expected, Pointing to More Consumer Troubles

Money disappearing.Photo byRegularguy.ethonUnsplash

Those hoping for a reprieve from the financial pressures of inflation are going to be waiting at least a little longer. January's inflation report - released on Feb. 24th - did not give consumers or market analysts much in the way of good news.

The personal consumption expenditures report is an inflation-based analysis released monthly by the Bureau of Economic Analysis. The report is a preferred source of information for both the Federal Reserve - which has been raising interest rates in an effort to tamp down inflation - and politicians. January's report showed increases of 0.6% for the month and 4.7% year-over-year, both of which exceeded the figures that forecasters were expecting.

Stock markets fell sharply on the news. Inflation hit 40-year highs in 2022 when it rose more than 9% year-over-year. With wages rising by roughly half of that figure, the average U.S. consumer has been seeing their spending power decrease in a nearly-constant manner for several years. Particularly worrisome have been the runaway costs of transportation and housing, both of which rose at a pace higher than inflation overall and combine to form citizens' two biggest expenditures.

Many areas have seen those two expenditures increase by 30, 40, or even 50% over the course of just a few years, according to the Housing and Transportation Index. As a result, homelessness began rising significantly across the United States during the same period.

A house.Photo byBrie Odom MabeyonUnsplash

Inflation can have many causes, depending on the particular good or service being measured. In the current economic climate, costs have risen dramatically in many areas for a host of reasons, creating a "perfect storm" of sorts that impacted nearly every cost-of-living item that consumers encounter. A few of the factors suggested by economists include:

• Slashed interest rates during COVID created cheap mortgages and increased housing demand far further than supply could handle
• Supply-chain problems due to the pandemic creating a scarcity of some items
• Record increase in money supply due to stimulus spending by both Trump and Biden administrations in response to the pandemic
• Continued large spending packages unrelated to the pandemic

While the Federal Reserve has rapidly raised interest rates in an effort to release some of the pressure from inflation, the results so far have been mixed. While inflation has slowed down from its 2022 peak, year-over-year price increases are still outpacing wage gains, making for an increasingly difficult situation for U.S. consumers. These effects are particularly damaging to fixed-income retirees whose pensions and other income sources do not adjust for inflation.

With this latest report, market watchers now expect the Fed to continue its rate hike schedule unabated. It remains to be seen if those hikes alone can curtail inflation, or whether other items in the housing market and supply chains need to be resolved first. For now, consumers can expect higher prices for the foreseeable future.