U.S. price growth cooled in January, slowing from 3.4% to 3.1% on a 12-month basis, the Bureau of Labor Statistics reported Tuesday.
Excluding food and gas prices, “core” price growth was flat at 3.9% compared with December.
Yet while price growth continued to drift downward last month, the January data missed expectations for a more robust slowdown: Ahead of the report, economists surveyed were expecting a reading of 2.9%. They also expected a lower reading for the “core” reading, at 3.7%.
“The final mile towards the Fed’s 2% target was always going to be slow, erratic, and frustrating,” wrote Seema Shah, chief global strategist at Principal Asset Management, in a note to clients following the report’s release. “Today’s data is not what markets or the Fed would have liked to see, but it’s important not to overreact and jump to the assumption that an inflationary resurgence is developing.”
The data showed an unexpected increase in shelter costs, which include rent and homeownership. These climbed more than 6% on a 12-month basis.
However, in a note to clients, Capital Economics research group’s chief U.S. economist Paul Ashworth said such increases are unlikely to be sustained given more recent measures of rent growth.
“There is still plenty of disinflation in the economy,” Ashworth wrote.
Still, Tuesday’s report is another sign that elevated inflation continues to pervade parts of the U.S. economy.
While the pace of 12-month price increases has slowed from the near-double-digit highs reached in the summer of 2022, American consumers are still encountering higher prices compared with pre-pandemic prices.
With a few exceptions, economists agree that these higher price levels are most likely here to stay. Now, the question is how quickly price growth for consumer goods and services will continue to slow.
High price tolerance
Still, consumers appear to be adjusting to a new normal of higher prices. NBC News recently covered how the cost of fast food — traditionally seen as a refuge from high-priced dining — has surged in the post-pandemic period.
“Eating at home has become more affordable,” McDonald’s CEO Chris Kempczinski said in a call with analysts last week, noting that consumers making $45,000 or less per year were showing particular price sensitivity. “The battleground is certainly with that low-income consumer.”
After a massive surge amid the outbreak of the war in Ukraine, price growth for food at home has slowed dramatically — to just 1.3% on a 12-month basis in December.
By comparison, the price of food away from home has climbed, rising just above 5% on a 12-month basis in December.
As for Tuesday’s report, economists say that while it is likely to show marginal improvement toward the Federal Reserve’s official target of 2% annual inflation, it looks like solid economic growth will keep the pace of price increases elevated.
“We continue to see the path back to 2-percent inflation as challenging, absent a more significant loosening in the labor and housing markets,” economists with Citibank wrote in a note to clients Monday.
In other words, slower price growth could come at the cost of higher unemployment.
But absent a weakening labor market, price growth may be stuck above the 2% target, given wage and home price increases that remain elevated, the Citi analysts said.
Hurry up and wait
If that is the case, lower interest rates may not begin to materialize until late spring or early summer. In his most recent remarks, Federal Reserve Chair Jerome Powell said he would need to see greater confidence that inflation was slowing meaningfully. Powell also indicated that an interest rate cut in March was highly unlikely.
After March, the next opportunity for the Fed to announce a rate cut would be May 1. But the Citi analysts say it might take one more meeting after that, in June, for the first rate cut to come.
Analysts at Bank of America also see June as the likeliest month for the first rate cut since the end of the pandemic. In a note to clients Monday, they said January’s data will help Fed officials build a case for a rate cut in June but won’t be decisive on its own.
Meanwhile, the chief political victim of higher inflation remains President Joe Biden. In the latest NBC News poll, Biden’s chief Republican opponent, former President Donald Trump, held a 22-point advantage on the question of which presidential candidate would do a better job handling the economy, with 55% picking Trump and 33% choosing Biden.
A separate poll published last month by Harvard CAPS-Harris found that immigration had surpassed inflation as the chief concern among voters who were surveyed — but with inflation still ranking second.
Over the weekend, Biden called on corporations to curb the trend of “shrinkflation,” charging the same prices for lesser-sized goods. A report released by Sen. Bob Casey, D-Pa., found that household paper products were 34.9% more expensive per unit than they were in January 2019, with about 10.3% of the increase due to producers’ shrinking the sizes of rolls and packages.
As for how Trump would tackle inflation, liberal and conservative economists alike say some of his proposals — specifically adding foreign tariffs on imports and limiting immigration — could actually reignite it. Trump has also promised to replace Powell, whom he nominated when he was president in 2017, as Federal Reserve chairman, though only because, Trump said, he believed Powell would seek to “help the Democrats” by cutting interest rates in advance of the November 2024 election, a claim that is unfounded.
The Fed has historically sought to immunize itself from political pressures and didn’t comment on Trump’s remarks.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
