A key inflation measure was moderated in January

a measure of inflation Rates, closely watched by the Federal Reserve, continued to cool on an annual basis in January, the latest sign that price increases are coming back under control even as the economy continues to sluggish.

The price index for personal consumption expenditure rose by 2.4 percent last month compared to a year earlier. That was in line with what economists had forecast and lower than the 2.6 percent in December.

After removing food and fuel costs, which can fluctuate from month to month, a ‘core’ price index rose 2.8 percent from January 2022. That followed a figure of 2.9 percent in December.

Still, the closely watched core measure rose faster on a monthly basis, rising 0.4 percent, faster than December’s 0.1 percent. That was the fastest pace of increase since January 2023, as services prices continued to rise at a rapid pace.

Overall, the data provide further evidence that while inflation continues to decline, the path back to normal could remain at least somewhat bumpy.

Fed officials are targeting a 2 percent price increase, so current inflation remains high. Yet it is much lower than it Highlight in 2022. In their December economic projections, central bankers predicted inflation would rise cool to 2.4 percent at the end of the year.

“They probably won’t worry too much about just one print,” said Omair Sharif, founder of Inflation Insights, but he noted that policymakers would likely pay attention to the robust monthly inflation numbers. “This is clearly going in the wrong direction.”

Policymakers meet next on March 19 and 20, and the latest inflation data could play a role in how they think about the economy. Policymakers will likely summarize this report with a more current inflation measure, the consumer price index ready for release on March 12.

Officials have recently been able to scale back their campaign to slow the economy as price increases have cooled quickly.

Fed officials have already raised rates to a range of 5.25 to 5.5 percent, a sharp increase from near zero in early 2022. But they have skipped a final rate hike they had forecast earlier in 2023, signaling that they could lower interest rates. Reviewed several times this year.

Investors are now wondering how soon these rate cuts could come, and how quickly they will continue. But Fed officials have taken a wait-and-see approach and are concerned about declaring victory before inflation is finally eradicated.

“While we have seen great progress toward achieving our goals, the journey is not over,” John C. Williams, the president of the powerful Federal Reserve Bank of New York, said in a statement. speech this week. But he said there were risks on both sides.

“Inflation could surprise on the upside, or consumer strength – a key driver of the robust growth we saw in 2023 – could fade faster than I expect,” he said.

Mr Sharif pointed out that while there has been much fuss in recent months that inflation had fallen sharply on a six-month basis, the latest report supports the Fed’s reasons for caution. It shows that the number is “more or less going the other way now.”

Thursday’s report also took a fresh look at consumer spending, suggesting that consumers spent less last month, adjusted for inflation.

At the same time, a measure of personal income rose more than expected, partly because dividend income rose. Such gains, amid slowing price increases, could give shoppers more money to spend this year.