(Kitco News) - Gold prices are holding gains just below $1,900 after U.S. consumer prices rose roughly in line with expectations in January, raising prospects that the Federal Reserve will continue to ease its aggressive monetary policy stance through the rest of the year.
On Tuesday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.5% last month after a revised 0.1% increase in December. The data was in line with expectations.
The report said that consumer prices rose 6.4% in January compared to a year earlier, continuing the moderating trend of recent months. Economists were expecting to see a rise of 6.2%. Inflation for the year was down compared to December's 6.5% increase.
While annual inflation was slightly higher than expected, the report said: "This was the smallest 12-month increase since the period ending October 2021." Annual inflation has dropped for the last seven straight months since peaking in June at 9.1%.
Core CPI, which strips out volatile food and energy prices, rose by 0.4% last month. The core numbers were also in line with expectations.
For the year, core inflation rose 5.6%, its smallest increase in the last 12 months, the report said.
The gold market is seeing some volatility in its initial reaction to the latest inflation data. However, prices have pushed to session highs last trading at $1,877.40 an ounce, up 0.75% on the day.
Looking at components of the index, the report said that shelter costs were "by far" the largest contributor to the increase in headline inflation, "accounting for nearly half of the monthly all items increase."
January also saw a broad-based increase in energy prices, with the energy index rising 2% last month.
The gold market is holding in positive territory but not seeing much traction as U.S. CPI rose in line with expectations. April gold futures last traded at $1,872.20 an ounce, up 0.47% on the day.
Although headline data was slightly higher than expected, Jim Wyckoff, senior technical analyst at Kitco.com, noted that markets are breathing a sigh of relief as whisper numbers were calling for a much hotter report.
"The trajectory of U.S. inflation is still headed down," he said.
Andrew Hunter, senior U.S. economist at Capital Economics, said that he expects inflation's downward trend to accelerate soon as goods shortages continue to ease, housing prices continue to fall and the labor market starts to cool.
"Alongside the apparent resilience of real economic growth at the start of this year, that will keep the Fed on course to continue raising rates over the coming meetings. But we still think a sharper slowdown in inflation is coming soon," he said.
