Inflation in the United States surged higher in January.
The Department of Labor said Wednesday that the consumer price index (CPI) rose 0.5 percent in January from the prior month, much more than expected. Compared with a year ago, consumer prices are up three percent.
Economists had expected the monthly pace of inflation to decline to 0.3 percent after prices rose 0.4 percent in December. The median forecast called for a 2.9 percent gain over the past 12-months, matching the prior month’s year-over-year gain. None of the economists surveyed by Econoday forecast prices rising as fast as 0.5 percent for the month or three percent for the year.
Core inflation, a metric that excludes volatile food and energy prices, rose by 0.4 percent for the month, twice the rate in December. Economists had forecast a smaller increase to 0.3 percent.
Compared with a year ago, core prices are up 3.3 percent, more than the 3.2 percent recorded in December. Economists had forecast a decline in the year-over-year rate to 3.2 percent.
The unexpected strength of inflationary forces calls into question the Fed’s decision to cut rates at each of the final three meetings of the Federal Open Market Committee last year, including the stunning three-quarters of a point cut on the eve of the election in September.
Chairman Jerome Powell told a Senate panel on Tuesday that the Fed was no longer in a hurry to cut rates. The labor market has proved more resilient than the Fed expected and inflation more persistent.
The market had been pricing in two cuts this year, although these were not expected until this summer. Following the inflation report, the federal funds futures market was indicating that the Fed was more likely to cut once or not at all. Some investors now expect that the Fed’s next interest rate move could be an increase rather than a reduction.
Stocks and bonds sank after the release of the data. The dollar strengthened against most foreign currencies, as higher interest rates make holding dollars more attractive.
Housing inflation, a key driver of service-sector price increases, remained elevated. Shelter costs rose 0.4 percent in January, with owners’ equivalent rent and primary rent each increasing 0.3 percent. Housing affordability remains a challenge as rent prices continue to climb, adding pressure on policymakers evaluating the trajectory of inflation.
Food prices rose a steep 0.5 percent in January, driven by a 15.2 percent increase in egg prices. Core inflation showed persistent pressures, with higher inflation in the prices of prescription drugs, car insurance, airfares, used car prices, and hotels.
Energy costs climbed 1.8 percent compared with a month earlier.
Inflation was widespread in January. Core goods prices, another measure that excludes food and energy, rose 0.3 percent, the highest rate of goods inflation since May 2023. Core services inflation, which excludes energy services, rose 0.5 percent.
If prices rise at the January pace for the rest of the year, the inflation rate would climb to 5.7 percent.
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