Inflation Falls to Nearly Five-Year Low02/13 08:05

   A key measure of inflation fell to nearly a five-year low last month as 
apartment rental price growth slowed and gas prices fell, offering some relief 
to Americans grappling with the sharp cost increases of the past five years.

   WASHINGTON (AP) -- A key measure of inflation fell to nearly a five-year low 
last month as apartment rental price growth slowed and gas prices fell, 
offering some relief to Americans grappling with the sharp cost increases of 
the past five years.

   Inflation dropped to 2.4% in January compared with a year earlier, down from 
2.7% in December and not too far from the Federal Reserve's 2% target. Core 
prices, which exclude the volatile food and energy categories, rose just 2.5% 
in January from a year ago, down from 2.6% the previous month and the smallest 
increase since March 2021.

   Friday's report suggests inflation is cooling, but it comes after the cost 
of food, gas, and apartment rents soared after the pandemic, with consumer 
prices about 25% higher than they were five years ago. The increase in such a 
broad range of costs has become a high-profile political issue under the rubric 
of "affordability."

   On a monthly basis, consumer prices rose 0.2% in January from December, 
while core prices rose 0.3%. Core inflation was held down by a sharp drop in 
the price of used cars, which fell 1.8% just in January from December.

   Gas prices fell 3.2% last month, the third drop in the past four months, and 
are down 7.5% from a year earlier. Grocery prices increased 0.2% in January, 
after a big 0.6% rise in December, and are up 2.1% from a year ago.

   If inflation gets closer to the Federal Reserve's target of 2%, it could 
allow the central bank to cut its key short-term interest rate further this 
year, as Trump has repeatedly demanded. High borrowing costs for things like 
mortgages and auto loans have also contributed to a perception that many 
big-ticket items remain out of reach for many Americans.

   U.S. markets immediately reversed course early Friday and futures moved into 
positive territory. The yield on the 10-year Treasury note, which heavily 
influences mortgage rates, declined on the expectation that lower inflation 
will allow the Fed to cut rates.

   Inflation surged to 9.1% in 2022 as consumer spending soared at the same 
time supply chains snarled in the wake of the pandemic. It began to fall in 
2023 but leveled off around 3% in mid-2024 and remained elevated last year.

   Inflation cooled a bit this fall, though some of that reflected the 
disruptions of the six-week government shutdown in October. The shutdown 
disrupted the government's data collection and led them to estimate price 
changes in November for housing that most economists say artificially lowered 
inflation that month.

   At the same time, measures of wage growth have declined in the past year or 
so as hiring has cratered. With companies reluctant to add jobs, workers don't 
have as much leverage to demand raises. Smaller pay increases can reduce 
inflationary pressures as companies often raise prices to offset higher wages.

   More modest wage growth is a big reason that many economists expect 
inflation to continue easing this year.

   "We're not expecting inflation to start up again by any stretch," said Luke 
Tilley, chief economist for Wilmington Trust.

   Many businesses are still eating some tariff costs and economists expect 
they may raise prices more in the next few months to offset those extra 
expenses. Still, most forecast that inflation will decline further by the 
second half of the year and drop closer to the Fed's 2% target by the end of 
2026.