Why this week’s inflation report is especially important
Subscribe to enjoy similar stories. Not every monthly inflation report is created equally. In an economy with price pressures, January has packed a bigger punch.
Price hikes in recent years have been exceptionally strong in the month of January, reflecting outsize turn-of-the-year price resets. The upshot is that inflation reports due this week could show whether the Federal Reserve’s fight to bring inflation down has cleared a key hurdle. The beginning of the year marks a natural time for businesses to incorporate a year’s worth of higher food, energy and labor costs—for example, for restaurants to raise menu prices, gyms to boost membership rates and private-car services to raise transportation rates.
Such price increases have been especially large in each of the past three years following the high inflation that greeted the reopening of the economy from the Covid-19 pandemic in 2021. “If you’re going to push through price increases, the start of the year is a logical time to do that," said Omair Sharif, founder of research firm Inflation Insights. Because companies have more pricing power when the economy is strong, businesses haven’t been deterred so far from large turn-of-the-year hikes “despite the fact that consumers say they are not going to stand for more price increases," said Sharif.
The Labor Department is set to report Wednesday on January prices as measured by the consumer-price index. A separate report on wholesale prices is due Thursday. Those two measures are used to calculate inflation according to a third gauge that the Fed prefers, called the personal-consumption expenditures price index, or PCE, which will be released by the Commerce Department at the end of the month.
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