Inflation ticks up to 3 percent annual increase in January
The consumer price index (CPI) increased by 0.5 percent in January to hit an annual increase of 3.0 percent after advancing by 2.9 percent in December.
Economists were expecting the CPI to increase by between 2.8 percent and 2.9 percent, so Wednesday's number from the Labor Department comes in slightly above expectations.
January is the fourth consecutive month in which inflation has ticked up, rising from a 2.4 percent increase in September.
Shelter costs rose 0.4 percent on the month, climbing to a 4.4-percent annual increase and making up about 30 percent of January’s inflation over all, the Labor Department noted.
Perhaps most concerning for economists, “core” inflation — which removes the particularly volatile categories of food and energy and is seen as a more fundamental measure of price pressures in the economy – rose by 0.4 percent, its largest uptick in at least six months. Core inflation was up 3.3 percent in January on an annual basis.
Investors noted the combination of rising prices and new import tax policies that are being rolled out by the Trump administration could rattle markets.
“Today's print will do little to calm the tariff-ied rates markets,” Damian McIntyre, portfolio manager at Federated Hermes, wrote in a Wednesday commentary. “Inflation has clearly paused its decline, and recent tariff announcements have the potential to increase inflation in the coming months.”
Food prices showed some upward movements in Wednesday’s report, marking an area of price concern that featured in the 2024 presidential election. While food inflation is running below the headline at a 2.5-percent annual increase, it jumped by 0.4 percent on the month, the biggest increase in at least six months.
Meat prices were up 3.2 percent in January compared to last year, with beef and ground beef 5.5 percent more expensive.
Egg prices skyrocketed in January, increasing by 15 percent on the month to hit a 53 percent increase on the year.
Amid rising prices and solid job numbers over the past few months, the Fed has paused its rate cuts after slashing them three times over the fall, a break that looks set to continue.
“Today’s inflation report will make for very uncomfortable reading for the Fed,” Principal Asset Management strategist Seema Shah wrote in an analysis. “The biggest monthly headline inflation increase since August 2023 will not be received well by policymakers or markets alike.”
Other commentators observed that the dual effects of rising prices and expected tariffs are likely influencing various business strategies across the private sector, especially in inventory management.
“Between the surge in imports and inventory in December and the rise in key goods prices in January, we are seeing more evidence of anticipatory behavior from businesses ahead of tariff threats and policies,” former Fed economist Skanda Amarnath wrote. “This is a dynamic the Fed will have to monitor and today’s data likely pushes out the timeline for when the next interest rate cut might feasibly materialize.”
Updated at 9:25 a.m. EST
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