Overall U.S. inflation stretched its streak of declines to seven straight months in January and now stands at 6.4% in the last 12 months, down slightly from 6.5% in December, according to a Labor Department report released Tuesday.
But consumer prices ticked up month-over-month and other indicators suggest inflated prices will persist.
The U.S consumer price index, which tracks fluctuations in a representative sample of goods and services, has gone down every month since hitting 9.1% last June, the highest annual inflation since 1981.
The eight-state Mountain West region, which includes Utah, continues to see inflation rates far outpacing the national average. In January, year-over-year inflation hit 7.2% for the area, the highest in the country but down from December’s 7.4%.
According to Tuesday’s Consumer Price Index Summary from the Labor Department, prices rose 0.5% from December to January after bumping up .1% from November to December. January’s price increases were driven primarily by rising costs for shelter — by far the largest — with the indexes for food, gasoline and natural gas also contributing, per the federal report.
According to data from AAA, the average price for a gallon of regular gas in Utah was $3.78 on Tuesday, up from $3.70 a week ago and $3.32 this time last month.
Prices on used cars and trucks, medical care and airline fares were among categories that saw monthly price declines in January, according to the Labor Department.
The so-called “core” price index, which excludes volatile food and energy costs, increased .4% last month, up from .3% in December. Over the last year, core prices rose 5.6%, down from December’s 5.7%.
Grocery prices in January were up 11.3% over last year, electricity rose 11.9%, and the cost of shelter was 7.9% more expensive than the same time a year ago.
Economists say ongoing inflation is being buoyed by a robust U.S. labor market that added a surprising 517,000 jobs in January as unemployment slipped to 3.4%, the lowest rate since 1969. There are now two unfilled jobs for every available unemployed worker in the country, an imbalance that’s helped push wages higher, now up about 5% over last year.
As employers are forced to spend more to compete for workers in an ultra-tight jobs market, those costs are typically passed on to consumers in the form of higher prices, and particularly so for service sector businesses.
Last month, Federal Reserve Chairman Jerome Powell noted the inflation/jobs market disparity but characterized it as a positive sign in the monetary body’s ongoing battle to quell U.S. inflation that ran at or near 40-year highs for much of the past year.
“It is a good thing that the disinflation that we’ve seen so far has not come with weakening in the labor market,” Powell said at a press conference following the Fed’s January board of governors meeting.
Powell’s comments followed the Fed’s announcement of a .25% increase to its inter-bank lending rate, the eighth consecutive rate hike going back to March of last year and a continuation of the Fed’s most aggressive strategy for decades. Its benchmark rate has moved from near zero early last year to its current level of 4.5% to 4.75%, the highest since 2007.
Tuesday’s inflation report, on top of the latest jobs data, is likely to bolster the Fed’s signaled intention of continuing rate hikes, noted in a statement released after its January meeting.
“The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” the statement read.
While inflation is ticking down across a large swath of the economy, an even larger segment, core services excepting the housing sector, have still not seen any easing, Powell said last month. And that reality, he said, is the driving factor behind likely additional rate hikes.
What’s in store for Utah’s economy in 2023?
A report from the Utah Economic Council released in January predicted Utah’s economy could go one of three ways in the year ahead — continue moderate GDP growth of 2% to 4%, see growth slow to 0% to 2% or slip into a moderate recession where the state’s GDP could contract by around negative 1%.
So, why did the economic council, a collaboration of the University of Utah’s David Eccles School of Business and the Governor’s Office of Planning and Budget, present a grab-bag projection for the coming year?
Current economic conditions have been roiled thanks to a set of extraordinary functional and financial circumstances and, thus, have never had to be figured into economic prognostications. A global public health crisis, subsequent widespread disruptions to product supply chains, seismic shifts in consumer behavior and government-backed cash inputs such as individual stimulus checks and massive business subsidies have blown up the previous models when it comes to guessing what’s coming next.
“The post-pandemic economy has altered many traditional economic relationships,” the report reads. “These economic transformations make accurate predictions challenging because it’s unclear if or when old patterns will return, or if new arrangements will chart a different economic course.”
The main takeaway from the report, which was presented to Utah Gov. Spencer Cox at a January economic summit, was a simple message that applies to budget decision makers at every level — be ready for anything.