Sapped by Pandemic, Inflation Stays Low in January

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U.S. consumer prices increased ever so slightly in January, driven almost entirely by higher gas prices, government data showed Wednesday. 

The inflation rate still remains lower than desired for a healthy economy, though, dragged down as the pandemic keeps a lid on demand for goods and services.

The Consumer Price Index (CPI)—which measures changes in prices paid—increased a seasonally adjusted 0.3% in January, accelerating slightly from a 0.2% increase in December and matching expectations of economists cited by Moody’s Analytics. A 7.4% increase in gasoline prices, which rose in line with oil rates, was the main reason for the bump in the overall number, the Bureau of Labor Statistics said in a report.  

The seasonally adjusted “core” rate of inflation (which excludes food and energy prices,) was zero for the second straight month. Compared to January 2020, core prices rose 1.4%, well below the 2.3% seen in 2019 and the 2% long-term target set by the Federal Reserve.

The COVID-19 pandemic has limited our activities, putting a damper on demand for everything from hotels to high heels. And while inflation makes things more expensive, a certain amount is desirable because it helps ensure higher employment. 

Some economists, including Moody's Analytics' Ryan Sweet, say inflation will pick up because of shortages of supplies like semiconductors, copper, and electronic components. The end result could push the cost of making goods higher. End consumers would likely take the brunt of it, with the price of finished products increasing.