WASHINGTON — Annual inflation in the United States cooled last month to 3.1 percent over the prior year, stubbornly higher than the Fed’s 2 percent target, in the latest sign that the pandemic-fueled price surge is only gradually and fitfully coming under control. The elevated pace of price increases comes as public frustration with inflation has become a pivotal issue in President Biden’s bid for re-election.

Tuesday’s report from the Labor Department shows that the consumer price index rose 0.3 percent between December and January, up from a 0.2 percent increase the previous month. 

The year-over-year increase is less than the 3.4 percent figure in December and far below the 9.1 percent inflation peak in mid-2022.

Excluding the volatile food and energy categories, so-called core prices climbed 0.4 percent last month, up from 0.3 percent in December and 3.9 percent over the past 12 months. 

Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed. The annual figure is the same as it was in December.

Biden administration officials note that inflation has plummeted since pandemic-related supply disruptions and significant government aid sent it soaring three years ago. And a raft of forward-looking data suggests that inflation will continue to cool.

Still, even as it nears the Fed’s target level, many Americans remain exasperated that average prices are still about 19 percent higher than they were when Mr. Biden took office.

The mixed data released Tuesday could reinforce the caution of Fed officials, who have said they’re pleased with the progress in sharply reducing inflation but want to see further evidence before feeling confident that it’s sustainably headed back to their 2 percent target. 

Most economists think the central bank will want to wait until May or June to begin cutting its benchmark rate from its 22-year-high of roughly 5.4 percent.

The Fed raised its key rate 11 times, between March 2022 and July of last year, in a concerted drive to defeat high inflation. The result has been much higher borrowing rates for businesses and consumers, including for mortgages and auto loans. 

Rate cuts, whenever they happen, would eventually lead to lower borrowing costs for many categories of loans.

The Fed chairman, Jerome Powell, noted during a recent news conference that most of the decline in inflation so far has stemmed from lower prices for goods, including used cars, furniture and appliances, which have dropped in six of the past seven months.

By contrast, the costs of services — auto repairs, health care, hotel rooms, concerts and other entertainment — are still rising briskly. Core services prices, which exclude energy, jumped 5.3 percent in 2023. The Fed will want to see some cooling in services prices to become more assured that inflation is declining.

A rate cut by the central bank typically lowers the costs of mortgages, auto loans, credit cards and other consumer and business borrowing, and could bolster the economy. 

A much stronger economy could also pose a challenge for the Fed, though, because faster growth can accelerate wages and consumer spending. 

If businesses aren’t able to keep up with greater customer demand, they typically respond by raising prices, which would worsen inflation.

In the final three months of last year, the economy grew at an unexpectedly rapid 3.3 percent annual rate. There are signs that growth remains healthy so far in 2024. Businesses engaged in a burst of hiring last month.

 Surveys of manufacturing companies found that new orders rose in January. And services companies reported an uptick in sales.

Associated Press