US inflation slowed only slightly last month, raising fears of more interest rate hikes from the country’s central bank.
The Valentine’s Day report showed that prices in America rose by 6.4 per cent in January, down from 6.5 per cent in December but higher than the 6.2 per cent that had been predicted by economists.
It is the seventh month in a row that inflation has fallen after hitting a 40-year high of 9.1 per cent last June.
US inflation: The Valentine’s Day report showed prices in America rose by 6.4% in January, down from 6.5% in December but higher than the 6.2% predicted by economists
But the slower-than-expected decline sparked concerns among analysts the US Federal Reserve will continue to raise interest rates sharply to bring inflation under control, as the level is still well above the central bank’s target of 2 per cent.
An unexpectedly strong jobs report last month has also sparked speculation that the central bank would need to increase rates more aggressively to cool the pace of price rises.
Diane Swonk, chief economist at KPMG, said the data would give the Fed ‘heartache’ as inflation in January had remained ‘sizzling hot’.
‘Today’s data puts a half-per-cent hike back on the table for the March Federal Reserve meeting,’ she added.
Meanwhile, Marcus Brookes, chief investment officer at Quilter Investors, said the Fed will be ‘determined not to take its foot off the gas too early’.
‘With inflation falling, but at a much more gradual pace than on the way up, the opportunity for policy mis-step is greater.
Today’s inflation number reminds everyone of the difficulties faced, and we are still far too early to declare victory yet.’
The inflation figure was driven mainly by prices of energy, which rose 2 per cent over the month, as well as shelter costs, such as rent, which crept up 0.7 per cent.
There was a mixed reception on Wall Street on the back of the inflation data as traders fretted that sharper interest rate rises were now more likely.
The Dow Jones Industrial Average dropped 0.5 per cent and the S&P 500 closed flat. But the Nasdaq rallied 0.6 per cent.
Markets also began to price in the chance that US interest rates would not be cut back as quickly as previously hoped.
Analysts currently expect rates to peak in July at 5.25 per cent before being cut once to 5pc by December. Earlier this month, two cuts were being priced in for the year.
Interest rates are currently between 4.5 per cent and 4.75 per cent.
Federal Reserve chairman Jerome Powell has previously acknowledged inflation in the US was easing but indicated the central bank would continue to raise rates to bring it back down to target.
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