This is not good.
Inflation in January rose more than expected, adding pressure on the Federal Reserve to maintain its current stance on interest rates. The consumer price index (CPI), a key measure of inflation for goods and services in the U.S. economy, increased by 0.5% for the month, raising the annual inflation rate to 3%, according to the Bureau of Labor Statistics. Both figures were higher than the Dow Jones forecasts of 0.3% monthly and 2.9% annually. This marks a slight increase from December’s annual inflation rate.
When excluding the more volatile food and energy prices, core CPI grew by 0.4% for the month, resulting in a 12-month inflation rate of 3.3%, again surpassing expectations. The higher inflation figures led to a market selloff, with Dow Jones futures dropping by over 400 points and bond yields spiking. Josh Jamner, an analyst at ClearBridge Investments, noted that this report likely ends hopes for rate cuts anytime soon.
Federal Reserve Chair Jerome Powell emphasized caution in overinterpreting the CPI figures, stating that the Fed relies more on the Commerce Department’s personal consumption expenditures price index. He also reiterated that the Fed remains cautious, evaluating the data before making further policy decisions.
One of the key drivers of inflation was shelter costs, which increased by 0.4% for the month and contributed significantly to the overall price growth. Higher mortgage rates have driven more people into the rental market, leading to increased rental prices. Food prices also surged, particularly egg prices, which have risen sharply due to the avian flu crisis.
Energy prices rose by 1.1% in January, with gasoline up 1.8%. The combination of rising costs and inflation has eroded wage gains, with the CPI increase offsetting a 0.5% rise in average hourly earnings, resulting in no real increase in workers’ purchasing power. Despite calls from President Trump for lower interest rates, the higher-than-expected inflation figures make it unlikely the Federal Reserve will ease monetary policy in the near future.
