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.

January’s month-to-month price increase will likely underscore the concern expressed recently by Federal Reserve officials about the risk of cutting interest rates too soon this year. Minutes from the Fed’s most recent meeting in January showed that most of the policymakers were wary of reducing rates prematurely, before inflation had sustainably returned to the Fed’s 2% target.

Thursday’s figures “very much explain why they were right to be cautious,” Omair Sharif, founder of Inflation Insights, a consulting firm, said of Fed officials. “They continue to want to get more confidence.”

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

Still, January’s jump follows three months of very low readings in core inflation. And in the second half of last year, core prices rose at just a 1.9% annual rate.

Fed officials have welcomed the long-term decline in inflation and have continued to signal that they will likely cut their benchmark interest rate multiple times this year. Most economists expect the first reduction to occur in May or June.

One trend that is helping keep a lid on price increases is a growing consumer pushback against still-high prices, particularly for packaged foods, cars and other physical goods. CEOs at a range of companies, from PepsiCo to McDonald’s to General Mills, have said in the past month that their companies are slowing price increases for their products to pre-pandemic levels after steeper price hikes had resulted in lower sales volumes.

The consumer pushback has come from people like Shannon LoConte, who said she stopped buying name-brand potato chips once their price approached $7 a bag. She has also cut back on Vanilla Coke because the only way to obtain it at an affordable price was to buy it in bulk.

“There is a certain point where I had to say enough is enough,” said LoConte, 30, who lives outside Charleston, South Carolina and works in marketing. “If it’s $7 for this bag of chips and I can go get $7 worth of groceries or go make my own baked potatoes, I’m going to just go do that, instead.”

Inflation, as measured by the Fed’s preferred gauge, fell 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.

Beginning in March 2022, the Fed raised its benchmark rate 11 times to attack the worst bout of inflation in 40 years. Those rate hikes have helped cool inflation drastically. But they have also made borrowing much more expensive for consumers and businesses. In particular, high loan rates have throttled sales in the economy’s crucial homebuying sector. Conversely, rate cuts by the Fed, whenever they happen, would eventually lead to lower borrowing costs across the economy.

Behind the December-to-January rise in inflation were higher costs for services such as hotels, health care and restaurant meals. Hospital services, for example, are becoming more expensive to cover higher labor costs for sought-after nurses and other health care workers. The same trend is also evident in other service industries. It’s one reason why inflation has proved more chronic for services than for goods, where prices have eased as company supplies have been replenished.

One bright spot in Thursday’s report was that incomes jumped 1% from December to January, led by a 3.2% cost-of-living increase in Social Security and other government benefits. At the same time, the report showed that consumer spending rose just 0.2%. The result was that Americans saved slightly more last month.

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. By early spring, most analysts expect prices to settle back to the milder pace of increases that occurred in the second half of 2023.

Thursday’s inflation data mirrors figures released earlier this month that showed that the government’s more widely followed consumer price index also rose faster in January than it had in previous months. The Fed prefers the measure reported Thursday, in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.

Several Fed officials have said they’re optimistic that inflation will continue to fall back toward the Fed’s target level, with some downplaying the recent pickup in prices as a one-time jump.

“The path will continue to be bumpy, and we should not overreact to individual data readings,” Susan Collins, president of the Federal Reserve Bank of Boston, said Wednesday. “I remain what I call a ‘realistic optimist’ in thinking that the economy is on a path to 2% inflation on a sustained basis while maintaining a healthy labor market.”

Outside the Fed, most economists envision a steady, if fitful, slowdown of inflation in the coming months. Economists at Goldman Sachs project that core inflation, as measured by the Fed’s preferred gauge, will drop rapidly to just 2.2% by May — low enough for the Fed to initiate rate cuts in June.

(AP)