Inflation growth in January surprises analysts, but recession remains uncertain

Inflation outpaced expectations in January as the consumer price index (CPI) gained 0.5%, but despite the new numbers the recession debate remains unresolved.

The CPI uses changes in the costs of goods and services such as energy, food and shelter to calculate inflation. The index’s 0.5% increase in January contributed to a 6.4% annual inflation increase. Both numbers surpassed expectations set in a Dow Jones economist survey, whose respondents expected the monthly increase to hit 0.4%, and the yearly total to be 6.2%.

Although the changes to inflation may seem minuscule, they may very well serve as the basis for further interest rate hikes. While no one expected the American consumer’s economic woes to diminish in January, the numbers suggest that the disinflationary measures taken by the Federal Reserve have so far failed to keep growth within desirable parameters. Last month, the Fed Chairman, Jerome Powell, suggested that additional rate increases were forthcoming, and although an unexpected half point increase won’t trigger an immediate response, if February also fails to alleviate inflationary pressure then that hint could become a promise far more quickly than anticipated.

Inflation is not the only concern facing the car market. Many analysts also believe a recession is likely to arrive before the third quarter. The two topics are naturally intertwined, but it is important to remember that economic recessions do not happen in a bubble. They are influenced by a multitude of factors, including unemployment, which hit its lowest numbers in decades in January. Retail performance and consumer spending also play a role in deciding the economy’s future, and, although last month’s reports are still trickling in, initial impressions have been positive. Ultimately, automotive retailers should wait patiently for more data before assuming the worst.

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