Economists anticipate that the inflation report scheduled for release on Thursday will reveal a setback in the fight against rising living costs in January. According to a survey of economists, inflation, as gauged by the Personal Consumption Expenditures by the Bureau of Economic Analysis, is projected to have increased by 0.3% in January compared to December, accelerating from the 0.2% uptick observed in December.
Core inflation, excluding food and energy prices, is expected to have doubled to a 0.4% rise, up from December’s 0.2% increase. If these forecasts prove accurate, the report will echo the concerns raised by the Consumer Price Index earlier this month, indicating that inflation is proving more resilient than anticipated by Federal Reserve policymakers.
Scott Anderson, chief U.S. economist at BMO Capital Markets, expressed pessimism, stating, “Unfortunately, we expect a similar performance of these measures as in the January CPI report.” The PCE inflation measure holds particular importance for Fed officials, who prefer its assessment of inflation trends over the widely cited CPI. Although the two measures typically align, a recent disparity has emerged, with PCE indicating slightly milder inflation.
The Fed has maintained its benchmark interest rate at its highest level since 2001 to curb the inflation surge following the pandemic. While inflation has moderated significantly since its peak in the summer, Fed officials remain cautious, awaiting further data indicating a sustained decline towards their target annualized rate of 2% before considering rate adjustments.
The elevated fed funds rate has resulted in higher interest rates on mortgages, car loans, and other forms of credit. Another disappointing inflation report could postpone rate cuts, prolonging higher borrowing costs. Financial markets currently predict that the first rate cut may occur in June, a delay from earlier expectations for March cuts, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.
Nonetheless, despite potential setbacks, most economists anticipate a downward trend in the coming months. Rent inflation has decreased over the past year, although this decline has yet to be reflected in official data.