US consumer price growth continued to decline marginally on an annual basis in January to 6.4%, down from 6.5% in December 2022. But monthly inflation increased by 0.5% compared to 0.1% in the final month of last year.
Housing and energy price rises prevented consumer prices from falling more substantially.
Economists had expected US inflation to come down to 6.2%. Used cars and medical services were the only categories in the consumer price index that saw prices fall in January.
US price increases peaked in June 2022 at 9% but have struggled to return to the US Federal Reserve’s targeted 2% range, despite a succession of interest rate rises.
The US central bank has raised rates eight times over the last 12 months, pushing its benchmark Fed Funds rate from 0% to 4.5%-4.75%.
The rate actions are an attempt to depress economic activity and bring down inflation.
January’s consumer inflation data is supporting the Fed’s case for further rate hikes. It comes after last month’s US jobs report found that employers hired 517,000 new workers, significantly more than analysts had forecast.
Fed officials have stressed that there is some way to go to bring inflation under control and the central bank would rather raise rates higher for longer than not do enough and have inflation return.
US interest rates are affecting local borrowing rates for loans and mortgages, which rely on prime rates priced at a margin above the US Fed Funds rate.
With the Fed expected to raise rates by at least 0.25 percentage points at the next meeting of the Federal Open Markets Committee in March, prime lending rates at local retail banks are going to hit 8%. This would take flexible rate mortgages in Cayman to about 9%.
US inflation data is also a reliable indicator for where Cayman’s consumer prices are heading as many local goods and fuel are imported from North America.
US food prices in January, for instance, were 10.1% higher than a year earlier and increased 0.5% from December.
In the third quarter of last year, the latest available data for Cayman, consumer price increases on island dropped to 9.1% from a record 12.1% in the second quarter.
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