Federal Reserve's preferred inflation gauge picked up last month in sign of still-elevated prices

WASHINGTON (AP) — An inflation gauge favored by the Federal Reserve increased in January, the latest sign that the slowdown in U.S. consumer price increases is occurring unevenly from month to month.

The government reported Thursday that prices rose 0.3% from December to January, up from 0.1% in the previous month. But in a more encouraging sign, prices were up just 2.4% from a year earlier, down from a 2.6% annual pace in December and the smallest such increase in nearly three years.

The year-over-year cooldown in inflation is sure to be welcomed by the White House as President Joe Biden seeks re-election. Still, even though average paychecks have outpaced inflation over the past year, many Americans remain frustrated that overall prices are still well above where they were before inflation erupted three years ago. That sentiment, evident in many public opinion polls, could pose a threat to Biden's re-election bid.

Inflation, as measured by the Fed's preferred gauge, fell steadily last year after having peaked at 7.1% in the summer of 2022. Supply chain snarls have eased, reducing costs of parts and raw materials, and a steady flow of job seekers has made it easier for employers to limit wage increases, one of the drivers of inflation. Still, inflation remains above the central bank's 2% annual target.

Excluding volatile food and energy costs, prices rose 0.4% from December to January, up from 0.1% in the previous month. And compared with a year earlier, such so-called “core” prices rose 2.8%, down from 2.9% in December. Economists consider core prices a better gauge of the likely path of future inflation.

Some of January's inflation reflects the fact that companies often raise prices in the first two months of the year, leaving January and February price data high compared with the rest of the year. But the costs of hospital and doctors' services are also rising to offset the sizable pay raises commanded by nurses and other in-demand health care workers.

That trend could help keep inflation elevated in the coming months. But by early spring, most analysts expect prices to settle back to the milder pace of increases that occurred in the second half of 2023, when inflation eased to a 2% annual rate.