The Biden Administration and the American public were greeted by grim economic data this week, as inflation picked up in January 2023, increasing the risk of a significant recession.
Following serious increases in inflation in both 2021 and 2022, the new year started with poor economic data as a key indicator showed a higher-than-expected jump in prices.
The increase clearly affected the market. Stocks fell Friday as fear of a recession increased.
Both the monthly and the annual rates of inflation were concerning. The overall personal consumption expenditure price index that affects the average American was up 5.4% year-over-year.
Furthermore, the figure from December was also revised up from 5.0% to 5.3%. The monthly rate was even more dramatic. The January increase was a whopping 0.6%, which was dramatically higher than December 2022’s 0.2%. In addition, that 0.2% figure was revised up from initial estimates of 0.1%. Economists expected that the inflation estimate was to be milder, at a full third less for the monthly figure and a half percentage less for the annual figure.
The increase was the highest in six months and renews fears that the inflation that spiked since 2021 may continue well into 2023 or beyond.
CNBC today: "Much of January’s inflation surge came from a 2% rise in energy prices, according to Friday’s report."
Kamala Harris two days ago: https://t.co/IkcjM7Ia5p
— Tom Bevan (@TomBevanRCP) February 24, 2023
The likely reaction to the higher inflation rates will likely be similar to those of the past year. The Federal Reserve will be under far higher pressure to increase rates to slow the growing rate of inflation.
The inflation indicator is also used by the Department of Commerce to determine inflation-adjusted national economic growth. The recent hot figures spell potential trouble in the American economy. The current inflation target for the Federal Reserve is far lower, at just 2.0%.
Furthermore, the increase in inflation also undermines one of the major arguments of the Biden White House over the last several months. The Biden Administration claimed that inflation was declining, even claiming that inflation in late 2022 was at 0%. This was not accurate.
