- US inflation came in at 6.4% for the year to January despite increasing by 0.5% in January on a monthly basis
- This is only slightly lower than December’s 6.5% reading and higher than had been expected
- But does mean US inflation has now fallen for the seventh month in a row
Laith Khalaf, head of investment analysis at AJ Bell, comments on the latest US inflation figures from the Bureau of Labour statistics:
“US inflation is falling, but too slowly by half. There is clearly still too much inflation in the bagging area, but in early trading the S&P 500 shrugged off the latest inflation numbers after an initial stutter.
“It’s never a good idea to set too much store by one month’s inflation reading, especially when volatile items like fuel and electricity hold so much sway. But the coming months will tell us whether the market is going to move on from fretting about how high inflation will go to worrying instead about how long it will last.
“And well it might, with much of the upward inflationary pressure coming from a basket of consumer unavoidables – in particular fuel, electricity, housing and food. That will inevitably create higher wage demands to keep pace with higher prices, which in turn could ignite the dreaded wage-price inflationary spiral, if it hasn’t already.
“Stickier inflation would also encourage the US Fed to keep applying the brakes through higher interest rates and to hold their foot down on the pedal for longer, so the market may live to regret pricing in a fall in interest rates by the end of this year. And of course, prolonged inflation and higher interest rates would mean more pressure on US consumers and economic growth, so we best hope that sticky inflation is just a flash in the pan. Though it might be best if we avoided using the word ‘transitory’.”
