As goods become cheaper, prices for services such as hotels and rental cars become more expensive.
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Household inflation expectations have not really changed in the new year. That’s the big takeaway from the New York Fed’s January consumer expectations survey, released Monday morning. For Jay Powell, this is mostly a good sign, because the expectation of high inflation can lead to high inflation.
On Tuesday we get the first real inflation reading for 2023: the CPI for January. In general, by the end of 2022, the CPI looked like it was headed in the right direction. So much so that the word “disinflation” has entered the Fed Chair’s vocabulary. So what should we look for?
While every CPI report is important these days, the January report will be especially important, said Nationwide economist Kathy Bostjancic.
“It’s just a really critical time for the Federal Reserve and for the markets and just for the economy in general,” she said.
Annual inflation was 7.8% in October, 7.1% in November and 6.4% in December. Economists want this momentum to continue.
If the January numbers continue this downtrend, Bostjancic said, we can be more confident that inflation is indeed about to be whipped up. But “if we don’t see further improvement this month,” she said, “it will affect sentiment, market sentiment and maybe consumer sentiment because that’s widely reported.” [Marketplace] and other.”
Of course, 2022 has taught us that a month’s inflation data can be skewed by anything from COVID lockdowns to Amazon Prime Days. Or – in the case of January – sunshine.
“We had pretty good weather in January,” said Erik Lundh, economist at the Conference Board. “People get off more often, maybe spend a little more.”
January’s CPI is also the first time the Bureau of Labor Statistics has used a new methodology, one that could make the price of goods more important than the price of services.
With many commodities actually falling in price, “the ultimate impact over the year is likely to be that inflation will be somewhat lower than it otherwise would have been,” said William Blair’s Richard de Chazal.
While goods are becoming cheaper, prices for services such as hotels and rental cars are still increasing.
Slowing service price increases is now Jay Powell’s top priority, said Lafayette College economist Julie Smith. “Because that’s the only way we can really get back to an inflation rate that’s closer to the Fed’s 2% target.”
We’re moving in that direction, Smith said. But it will take a while.
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