WASHINGTON (Reuters) – U.S. consumer prices rose more than expected in January amid rising housing and health care costs, but the rebound in inflation is unlikely to change expectations that the Federal Reserve will begin to cut interest rates in the first half of the year. this year.

The consumer price index (CPI) rose 0.3% last month after gaining 0.2% in December, the Department of Labor’s Bureau of Labor Statistics said on Tuesday. Annual revisions to CPI data released last Friday were mixed, but generally showed inflation was on a downward trend after rising in 2022.

In the 12 months to January, the CPI rose 3.1%. This followed a 3.4% advance in December. Economists polled by Reuters had forecast the CPI would gain 0.2% month-on-month and 2.9% year-on-year. The annual increase in consumer prices has moderated from a peak of 9.1% in June 2022.

The BLS updated seasonal factors, the model it uses to remove seasonal fluctuations from the data. New weights were used to calculate the January CPI data, which saw the proportion of homes increase and the proportion of new and used cars decrease.

That could partly explain the stronger-than-expected readings, which economists said were likely temporary.

Financial markets anticipate the U.S. central bank will begin cutting interest rates in May, although some economists are gravitating toward June, given the still-tight labor market and persistently elevated services inflation. Policymakers have said they are in no rush to start reducing borrowing costs and want convincing evidence that inflation is on a slow and steady path.

While significant progress has been made, risks remain, including the potential for renewed supply chain issues due to shipping disruptions in the Red Sea and drought in the Panama Canal. However, the inflation outlook remains quite favorable as rent growth is expected to moderate this year.

Since March 2022, the Federal Reserve has raised its policy rate by 525 basis points to the current range of 5.25% to 5.50%.

Excluding the volatile food and energy components, the CPI rose 0.4% last month after rising 0.3% in December. In addition to rents, price increases at the beginning of the year also probably explained the increase in the so-called basic CPI.

The core CPI advanced 3.9% year-on-year in January, matching December’s increase.

Although consumer prices remain high, the measures followed by the US central bank towards its 2% inflation target have improved considerably. The rise in the personal consumption expenditure (PCE) price index slowed to an annualized rate of 1.7% in the fourth quarter from a pace of 2.6% in the July-September quarter. The underlying PCE price index increased at a rate of 2.0%, unchanged from the third quarter.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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