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The Labor Department lays out last month's cost of living stats

STEVE INSKEEP, HOST:

Let's hear more now about the inflation rate, which fell a bit last month. NPR's Scott Horsley covers the numbers when they go up and when they go down. He's with us once again. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: And I just want to note - some people may have heard your dog the last time you were on live...

HORSLEY: (Laughter).

INSKEEP: ...A little bit earlier this morning. How's the dog doing? Doing OK?

HORSLEY: Ribsy's doing OK - paying close attention to the cost of veterinary services.

INSKEEP: OK, well, let's get that into the wider context of the overall inflation rate. What's the number?

HORSLEY: Inflation did come down in January. Overall, prices last month were up 3.1% from a year ago. That compares to a 3.4% annual inflation rate the month before. And, of course, it's way down from the nine-plus percent inflation rate we were living with back in the summer of 2022.

That said, January's numbers were a little hotter than forecasters had expected. They were projecting an inflation rate with a two in the front of it...

INSKEEP: Yeah.

HORSLEY: ...Which would have been the first in three years. Prices rose three-tenths of a percent between December and January. Rising rents and higher food prices were only partially offset during the month by the falling prices for things like gasoline.

INSKEEP: What does all of this - and, of course, also the veterinary services numbers, as well - mean for the Federal Reserve as they decide when and if to lower interest rates?

HORSLEY: Yeah, it means it could take a little longer for the Fed to start cutting interest rates. You know, the Fed has been looking for reassurance that inflation is moving steadily down towards its target rate of 2%. And today's report doesn't really show that kind of steady progress. In fact, if you strip out food and energy prices, which bounce around a lot, as we know, the annual inflation rate held steady in January, and the monthly increase was actually up a little bit. So the Fed is probably going to continue with its patient approach. Here's how Fed Chairman Jerome Powell described it a couple of weeks ago.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: What do we want to see? We want to see more good data. It's not that we're looking for better data. It's that we're looking at continuation of the good data that we've been seeing.

HORSLEY: Powell noted, so far, a lot of the improvement in inflation has come thanks to the falling cost of goods. And we saw that again in today's report, where there was a sharp drop in the price of used cars, for example. But it's not clear how much more room there is for goods prices to come down, so any additional progress on inflation may have to come elsewhere.

INSKEEP: Such as where?

HORSLEY: Well, two of the big pieces in the inflation puzzle are housing costs and services. Housing costs accounted for two-thirds of the price jump between December and January. We know, from market rents around the country, that housing costs are going up more slowly now than they had been. So eventually, that improvement in rental inflation should start to show up in the official government data, although it's not really showing up yet.

But that leaves services - you know, things like car repair and restaurant meals. Chief economist Kathy Bostjancic of Nationwide says that's an area the Fed is keeping a very close eye on.

KATHY BOSTJANCIC: That's what they're worried about. That's the sticky part. Once you do get the inflation embedded there, it's harder to wring it out.

HORSLEY: And today's report shows that stickiness. The price of restaurant meals rose half a percent between December and January. The price of car repair was up by a similar amount. And this is a good illustration of why the Fed is keeping its options open and not declaring victory over inflation just yet.

INSKEEP: Well, how soon might they lower interest rates, then?

HORSLEY: Well, probably not the next meeting, which is about five weeks from now, and the odds of a rate cut at the following meeting in May fell after this morning's report. But investors are still reasonably confident that we'll start to see interest rates come down in June, and that would be welcome for anyone looking for a car loan or business loan, or just carrying a balance on their credit card.

INSKEEP: Scott, best to you and Ribsy.

HORSLEY: Thank you.

INSKEEP: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.
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