US inflation in January: price inflation is weakening, but not as significantly as expected - monetary policy reversal questionable

US inflation in January: price inflation is weakening, but not as significantly as expected - monetary policy reversal questionable

According to a report by www.tagesschau.de,
Inflation in the US fell at the beginning of the year. Consumer prices rose 3.1 percent in January compared to the same month last year, the Labor Department announced today in Washington. In December the inflation rate was 3.4 percent. However, price inflation did not weaken as significantly as expected. Analysts had expected a rate of 2.9 percent on average. From December to January, prices rose by 0.3 percent. The experts had also expected lower growth on a monthly basis.

The numbers are important for the monetary policy of the world's most important central bank - the US Federal Reserve. It wants to sustainably control the inflation rate towards its target value of 2.0 percent. The unexpectedly high US consumer prices had a noticeable impact on the German stock market this afternoon. The DAX, which had already slipped below the 17,000 point mark at the start of trading, lost up to one percent to 16,871 points after the publication. Yields on ten-year US Treasuries, on the other hand, turned positive and rose to up to 4.297 percent from 4.170 percent the previous day. There was also a strong boost for the dollar: The dollar index rose by 0.6 percent to 104.81 points because market participants revised their bets on quick interest rate cuts by the US Federal Reserve in view of the slower decline in inflation. Inflation data is a crucial factor in the Fed's monetary policy direction.

From an economic perspective, the unexpectedly high inflation rates in the USA could lead to the Federal Reserve initially putting its plans for significant interest rate cuts on hold. Increased inflation could also weigh on the stock market and lead to rising bond yields. This decline in inflation could pose a challenge for the Fed, which wants to see more “good data” pointing to a turnaround in interest rates. This will impact the economy as a whole, as well as consumers and industries, as lower interest rates impact investment and growth.