On February 13 2024, the Bureau of Labor Statistics (BLS) released data that includes the month of January 2024, our first look at the Consumer Price Index (CPI) for the new year. The year-over-year CPI inflation rate came in at 3.1%, still well above the Fed’s 2% target. The monthly rate from December 2023 to January 2024, annualized, came in at 3.7%. This is a large increase over the annualized monthly reading in December 2023 of 2.8%, but monthly rates are volatile. As has been typical in recent months, the core CPI inflation rates, the inflation rate calculated after excluding the food and energy components, was 3.9% on a year-over-year basis, and the annualized monthly increase was 4.8%.
Figure 1 graphs these inflation rates since January 2021, and the volatility of the monthly (annualized) rates is apparent. It is also clear that by any of the measures the inflation rate is well above the 2% target. In fact, the inflation measures have reached something of a plateau that seems to be about 3% for headline CPI inflation and higher for core CPI inflation.
While the inflation rate is much lower than the historic levels seen in 2021 and in the first half of 2022, it remains stubbornly higher than the Fed’s target level. As we have stated repeatedly, it is hard to get the inflation genie back in the bottle. Better not to open that bottle in the first place.
The BLS also released wage data earlier this month and average hourly earnings of all private sector workers increased by 0.6% from November to December, an annualized rate of 6.8%. Year-over-year, wages in January 2024 were 4.5% higher than in January 2023.
It is more important to focus on real wages, wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in January were 4.5% higher than a year ago, and prices were 3.1% higher, so real wages rose by 1.3%. This continues a long period of gradually increasing real wages that began in summer 2022.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2022 is shown in the data, as the CPI grew faster than wages. In June 2022, real wages were 4.2% lower than in January 2021. Since then, the moderation of CPI inflation and the continued growth in wages have led to a period of generally positive but small increases in the purchasing power of wages. As of January 2024, the purchasing power of wages remains 2.2% lower than in January 2021.
