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The latest data on inflation may reveal a confusing story

LEILA FADEL, HOST:

We got a new report on inflation this morning, and the story it tells is somewhat confusing. Inflation looks modestly better when we compare prices from a year ago, but looking at prices from a month ago is less encouraging. That suggests there's still a long way to go to get back to stable prices. NPR's Scott Horsley joins us now. Good morning, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Leila.

FADEL: Scott, inflation's been coming down steadily since hitting a four-decade high last summer. What happened last month?

HORSLEY: It's kind of a mixed bag. The annual inflation rate is still cooling off. It was 6.4% in January, down slightly from 6.5% in December and well down from the 9-plus percent inflation rate we saw last summer. But when you zoom in and you look at month-to-month price changes, it's not really a straight-line picture. Gasoline prices, for example, which helped to keep a lid on inflation in December, bounced back up in January. Pump prices have come down again in the first couple weeks of February. But Devin Gladden of AAA says we can't necessarily count on falling gasoline prices to limit inflation in the months to come.

DEVIN GLADDEN: We are entering the higher-priced spring and summer driving season, and so drivers should brace for that. It will likely be a volatile year given how much uncertainty remains around the economy.

HORSLEY: And of course, gas prices are the most visible sign of that volatility. But there are others. Natural gas prices were significantly higher in January, and food and housing costs were up, too. So the road back to price stability looks like it's going to be longer and bumpier than most of us would like.

FADEL: How much longer?

HORSLEY: You know, Federal Reserve Chairman Jerome Powell said last week he does think we will see a significant drop in inflation this year, but he warned it'll likely be sometime next year before we get back down to the Fed's inflation target of just 2%. You know, housing costs are expected to start falling before too long, but the Fed is keeping a close eye on the cost of other services, things like haircuts and auto repair, which tend to be stickier than goods prices. And Powell doesn't think inflation is just going to magically fade away on its own.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: There's been an expectation that it'll go away quickly and painlessly, and I don't think that's at all guaranteed. That's not the base case. The base case for me is that it will take some time, and we'll have to do more rate increases, and then we'll have to look around and see whether we've done enough.

HORSLEY: The Fed has already raised interest rates by 4 1/2 percentage points since last March, and Fed policies hinted in December that they expect a couple more quarter-point rate hikes before they're done.

FADEL: So we're coming up on the anniversary of Russia's invasion of Ukraine, which has had ripple effects throughout the global economy. How has that affected inflation, and what does it mean going forward?

HORSLEY: Yeah, both the invasion itself and then the sanctions that were leveled against Russia in response to the invasion have been big drivers of inflation. Food and energy costs both soared last year. That's a reminder that, as Powell says, it's a risky world out there, and even the best laid economic plans can be upended by geopolitical shocks or natural disasters. In terms of inflation math, though, that one-year anniversary does mean that there's a new higher benchmark in prices. So when we look at prices in, say, March and April and May, we're going to be comparing them to those post-invasion peaks of a year ago. That's going to make inflation look less severe, even though, in some cases, we might still be talking about prices that are painfully high.

FADEL: NPR's Scott Horsley, thank you so much.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Leila Fadel is a national correspondent for NPR based in Los Angeles, covering issues of culture, diversity, and race.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.