Consumer Price Increases Slowed Slightly

Inflation cooled very slightly on an annual basis for a seventh straight month in January, narrowly continuing a deceleration that has come as supply chains have healed and prices for goods have moderated, but the details of the report offered reasons for concern.

Consumer Price Index data released on Tuesday showed that price increases picked up briskly on a monthly basis last month. That was true across both key measures: the one that includes gas and groceries, and a “core” index that strips out those products because of their month-to-month volatility to get a better sense of the underlying inflation trend.

The price index was up 6.4 percent in January compared with a year earlier. That was a very slight slowing from 6.5 percent in December, and is down notably from a peak of about 9 percent last summer. But compared with the previous month, prices climbed 0.4 percent after stripping out groceries and fuel — a rapid pace of growth that matched the increase in December.

The overall report shows that while the Federal Reserve has been receiving positive news on inflation — price increases are no longer relentlessly accelerating, the way they did for much of 2021 and the first half of 2022 — it could be a long and bumpy road back to normal.

“There has been an expectation that it will go away quickly and painlessly — and I don’t think that’s at all guaranteed,” Jerome H. Powell, the Fed chair, said at an event last week.

Pricier hotels, car insurance and vehicle repairs, and a continued rapid increase in rental costs are among the factors that helped to keep inflation figures high in January.

Goods including used cars and apparel for women dropped in price on a monthly basis.

Much of the inflation slowdown in recent months has come from a moderation in price increases for goods and commodities. After stripping those out, services inflation — which includes health care, restaurant meals, pedicures and other non-goods purchases — has remained unusually rapid and has shown little sign of slowing down.

That trend continued in January, with services prices excluding energy continuing to increase rapidly, partly owing to the jump in rental and other housing costs. A measure that Mr. Powell watches closely — one that tracks services and strips out housing in addition to food and gas — eased very slightly last month.

Officials at the Fed have been closely watching to see whether service price increases can decelerate, betting that it will probably be necessary to drive them lower in order to return inflation to the 2 percent that they aim for on average and over time. Central bankers define their inflation goal using a related but more delayed inflation measure.

Policymakers are worried that it could be challenging to wrestle inflation back to normal at a moment when the labor market is so strong, in part because companies may charge more as they pay more to compete for a limited pool of workers. Wages are a major cost of doing business for many service providers.

Employers added more than half a million jobs in January, an unexpectedly robust number, and gains in average hourly earnings and other pay trackers remain rapid, though they have begun to slow.

How strong inflation and the overall economy prove in the coming months will influence how high Fed policymakers ultimately lift interest rates and how long they keep them elevated. Central bankers have lifted their main policy rate from near-zero to more than 4.5 percent in less than a year, and have forecast that they will climb slightly above 5 percent.

“The base case for me is that it will take some time, and we’ll have to do more rate increases, and then we’ll have to look around and see whether we’ve done enough,” Mr. Powell said last week.