Feb 25, 2022 - Economy

Inflation stayed hot in January

Source: Bureau of Economic Analysis; Chart: Axios Visuals
Source: Bureau of Economic Analysis; Chart: Axios Visuals

Consumer prices continued rising rapidly as the year began, according to new government data that show no sign of U.S. inflation pressures abating.

Driving the news: The inflation measure preferred by the Federal Reserve, known as the personal consumption expenditures (PCE) price deflator, rose 0.6% in January, or 0.5% when volatile food and energy are excluded.

  • Over the last 12 months, the index was up 6.1% (5.2% excluding food and energy), a new four-decade high.

A rosy view of the numbers is that they do not suggest an upward spiral in the rate of inflation. Core PCE inflation has risen 0.5% for four straight months.

  • The less rosy view is that high inflation is well-entrenched and not going away anytime soon.
  • If sustained for a full year, 0.5% monthly inflation would translate to 6.2% annual inflation, due to compounding — far above the 2% the Fed aims for.

The new numbers from the Commerce Department also showed a mere 0.1% gain in Americans' disposable income, which translates to a decline of 0.5% after accounting for higher prices.

  • This measure, real disposable personal income, has been in negative territory every month since August. That helps explain the seeming conundrum of a strong job market and poor public opinion polling on the economy.

The bottom line: There is plenty of time for inflation to recede in 2022. But it didn't start happening in January.

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