The Labor Department is releasing the highly anticipated consumer price index on Thursday morning, providing a fresh look at just how hot inflation ran in January. Economists expect the gauge – which measures goods ranging from gasoline and health care to groceries and rents – to show that prices surged 7.3% in January from the year-ago period, toppling the previous month's 39-year high of 7%.
It would be the fastest increase in consumer prices since February 1982, when inflation hit 7.6%.
Rising inflation is eating away at strong gains and wages and salaries that American workers have seen in recent months – bad news for President Biden, who has seen his approval rating plunge as consumer prices rose. The White House has blamed the price spike on supply-chain bottlenecks and other pandemic-induced disruptions in the economy, while Republicans have pinned it on the president's massive spending agenda.
The Biden administration is already in damage control mode ahead of the newest inflation data, with press secretary Jen Psaki telling reporters Wednesday that the White House expects a "high year-over-year inflation reading."
"So above 7%, as I think some are predicting, would not be a surprise, even though we don't know what the data is going to be," Psaki said. "But looking at that reading of it as we prepare for tomorrow is still consistent with the path and our view."
The latest data will also have implications for the Federal Reserve ahead of its March meeting. Chairman Jerome Powell has signaled that policymakers will raise interest rates from rock-bottom levels next month in order to combat the hottest inflation in four decades. A higher-than-expected reading Thursday could push the Fed to hike rates by a half-point next month, rather than a quarter-point, its largest increase since 2000.
"Following last week’s stellar jobs report, another high inflation reading lays the groundwork for an all-but-certain March rate increase," said Scott Ruesterholz, a portfolio manager at Insight Investment. "A particularly hot report could increase market speculation of a 50-basis point hike, though that remains unlikely in our view as the Fed does not want to create undue volatility in its first hike, which only makes further increases more difficult."
Powell has left open the possibility of a rate hike at every meeting this year and has refused to rule out a more aggressive, half-percentage point rate hike, but said it's important to be "humble and nimble."
"We’re going to be led by the incoming data and the evolving outlook," he said.