TO inflation measure Interest rates closely watched by the Federal Reserve continued to cool annually in January, the latest sign that price increases are coming back under control even as the economy continues to advance.

The price index for personal consumption expenditures rose 2.4 percent last month compared with a year earlier. This was in line with what economists had forecast and below December’s reading of 2.6 percent.

After excluding food and fuel costs, which can vary from month to month, a “core” price index rose 2.8 percent from January 2023, following a reading of 2.9 percent in December.

Still, the closely watched underlying measure rose more quickly on a monthly basis: It rebounded 0.4 percent, faster than December’s 0.1 percent pace. That was the fastest pace of increase since January 2023, and it came as prices for services continued to rise at a rapid pace.

Taken together, the data provide further evidence that while inflation continues to decline, the road back to normal could remain at least somewhat bumpy.

Federal Reserve officials are targeting price increases of 2 percent, so the current inflation rate remains elevated. Even so, it is much lower than this measure. about 7 percent maximum in 2022. In their December economic projections, central bankers predicted that inflation would rise cool to 2.4 percent by the end of the year.

“They probably aren’t going to get too worked up about a single number,” said Omair Sharif, founder of Inflation Insights, but noted that policymakers would probably pay attention to the firm monthly inflation reading. “This is obviously going in the wrong direction.”

Political leaders see you next on March 19 and 20, and the latest inflation data could influence the way you think about the economy. Authorities are likely to take this report in conjunction with a more up-to-date measure of inflation, the Consumer Price Index, which is ready for launch on March 12.

Recently, officials have been able to backtrack on their campaign to slow the economy because price increases have been cooling rapidly.

Federal Reserve officials have already raised interest rates to a range of 5.25 to 5.5 percent, a sharp increase from near zero in early 2022. But they skipped a final rate hike they had forecast. previously in 2023, and have signaled they could cut interest rates. rates several times this year.

Investors are now wondering when those rate cuts might come and how quickly they will happen. But Federal Reserve officials have been taking a wait-and-see attitude, concerned about declaring victory before inflation is firmly stamped out.

“While we have seen great progress toward achieving our goals, the journey is not over yet,” said John C. Williams, president of the powerful Federal Reserve Bank of New York, in a speech this week. But he said there were risks on both sides.

“Inflation may surprise on the upside, or consumer strength – a major driver of the strong growth we saw in 2023 – may fade more quickly than I anticipate,” he said.

Sharif noted that while there was a lot of hype in recent months about the fact that inflation had fallen sharply in six months, the latest report reinforces the Fed’s reasons for being cautious. He shows that the number “now goes the other way.”

It could be particularly relevant to policymakers that the monthly rebound comes from service categories and, in part, from purchases such as healthcare and hospitality. Those measures can be slow and tied to the strength of the economy, so the Federal Reserve is watching them closely.

Thursday’s report also included a new reading on consumer spending and suggested that consumers spent less in inflation-adjusted terms last month.

“We expected consumers to rein in their spending this year after withdrawing pandemic-related savings,” wrote Kathy Bostjancic, Nationwide’s chief economist, in a note after the report.

At the same time, a measure of personal income rose more than expected, in part because Social Security payments were adjusted to the cost of living and because dividend income rose. Such gains amid slowing price increases could give shoppers continued resources to spend this year.