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This week’s top tier economic data focused on inflation both at the consumer and producer level. The headline Consumer Price Index (CPI) rose 0.5% in January versus the upwardly revised -0.1% reading in December. Inflation increased 6.4% year-on-year, down from 6.5% in December. Core CPI, excluding the volatile food and energy components, increased to 0.4% in January and 5.6% on a year-on-year basis, decelerating from 5.7% in December. Key factors contributing to inflation in January were housing, food, gasoline, and natural gas. Inflation at the producer level rebounded in January above the consensus of market participants. The Producer Price Index (PPI) jumped 0.7% last month and 6.0% year-over-year bolstered by higher energy costs. Core PPI, excluding the volatile food and energy components, rose 0.5% in January and 5.4% year-over-year. Inflation appears to be stickier than many market participants anticipated and remains above the Fed’s target providing another data point for the Fed to continue to increase the federal funds rate at its next meeting.

Although economic data was relatively light this week, numerous members of the Federal Reserve including Fed Chief Powell were consistent in their messaging this past week regarding the need for additional rate increases to curtail inflation. Another consistent theme among all Fed members interviewed this week was the strength of last week’s labor market report showing employers added 517,000 workers in January and an unemployment rate of 3.4%, the lowest rate since 1969. Chair Powell in a moderated discussion at the Economic Club of Washington, D.C. referenced the employment report, stating that “it shows you why we think this will be a process that takes a significant period of time.” In addition, Federal Reserve Bank of New York President John Williams at a Wall Street Journal event in New York referenced wage growth, which is above levels necessary to reach the Federal Reserve’s 2% goal for inflation.