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Inflation rose 3.1% during the 12-month period ending in January, a slower pace than the 3.4% increase for the one-year period that ended in December, according to the latest Consumer Price Index report released Tuesday by the U.S. Bureau of Labor Statistics. 

However, when the more volatile prices for food and energy are removed from the calculation, the so-called core items index rose 3.9% for the 12 months that ended in January, the same as the annual increase seen in December.  

Stocks slipped in early trading on Tuesday and bond yields rose after the January CPI report was released. Investors may be betting that stubborn inflation will prompt The Federal Reserve Board to keep interest rates high longer to cool the economy and slow inflation. 

Viewed on a monthly basis, consumer prices increased 0.3% in January on a seasonally adjusted basis, after rising 0.2% in December. The index for shelter continued to rise in January, increasing 0.6% from December and contributing over two-thirds of the monthly all items increase. The food index rose 0.4% in January, compared to a 0.2% monthly rise in December.  In contrast, the energy index fell 0.9% in large part due to lower gas prices. 

The core index for all items less food and energy rose 0.4% on a monthly basis in January, reflecting higher costs for items such as shelter, motor vehicle insurance, and medical care. The index for used cars and trucks (-3.4%) and the index for apparel (-0.7%) were among the consumer items that decreased over the month on the core index. 

Over the past year, the shelter index rose 6.0% for the 12 months ending in January, accounting for two-thirds of the annual increase in the core index for all items less food and energy. Other indexes with notable increases over the last year include motor vehicle insurance (+20.6%), recreation (+2.8%), personal care (+5.3%), and medical care (+1.1%). 

The Federal Reserve has kept the federal funds rate unchanged at a 23-year high of 5.25%-5.5%. At a news conference after the Fed’s last meeting on Jan. 31, Chairman Jerome Powell said the central bank may begin reducing interest rates sometime in 2024 but will make its decisions on a meeting-by-meeting basis. 

The Fed’s goal is to bring the inflation rate down to 2%. Although the current 3.1% annual inflation rate still exceeds that target, it is considerably lower than it was two summers ago, when the rate for the 12-months ending in June of 2022 peaked at 9.1%.