NEW YORK — Consumer prices rose faster than expected in January, due in part to quirks in the way the data is measured but also signaling that progress on reducing inflation has stalled.
The Consumer Price Index, a key measure of inflation, rose 0.5% from December, up from an 0.4% increase the previous month, the Labor Department said Wednesday. The Core CPI, which does not include volatile food and fuel costs, rose by 0.4%, the biggest month-to-month jump since March.
While these numbers are somewhat high, this may be partly the result of the way government statisticians adjust the numbers to account for seasonal factors. In the last several years, January inflation has tended to be higher than in other months, suggesting that the underlying rate of inflation may not be as strong as the January numbers suggest. Still, this increase can’t be written off entirely and indicates that inflation remains somewhat persistent.
“It’s easy to look at [the January effect] and say, ‘That means this increase is not a genuine reflection of what the inflation environment is like,’ said Thomas Simons, Chief US Economist at Jefferies Financial Group. “But I do think it’s important not to dismiss it entirely.”
Prices have risen 3% from January of last year, above the Federal Reserve’s desired 2% annual increase (though this target is based on a separate but related measure of inflation). Yearly inflation hit a 40-year high of 9% in 2022, and while inflation has since cooled, progress has slowed in recent months as that last percent proves difficult to get rid of. Because the rate of inflation is not slowing, a rate cut at the Fed’s March meeting appears to be off the table.
“They’ve definitely shifted into this ‘no hurry’ stance on further rate cuts,” said Simons.
At its last meeting, the Fed elected to hold interest rates steady at a rate of 4.25% to 4.5%, in part due to uncertainty surrounding President Trump’s proposed tariff policies, which could stoke further inflation.
Following the meeting, Trump imposed a 10% tariff on goods from China as well as instituted a 25% tariff on all imported steel and aluminum. He also paused tariffs on Mexico and Canada for 30 days, leaving investors and consumers alike in a state of suspended animation as they wait to see what Trump’s tariff policies will look like moving forward.
While economists had anticipated possible rate cuts following the March Fed meeting, further cuts at the May meeting are now “looking much, much, much less likely,” said Stephanie Roth, Chief Economist at Wolfe Research. “It’s possible that there’s no cuts for the rest of the year.”
Prices for shelter rose 0.4% in January, accounting for nearly a third of the overall increase. Rising vehicle prices also were a contributor and were caused in part by environmental events like hurricanes and wildfires, said Roth.
Food prices also rose, largely driven by a 15% increase in the price of eggs since December. This is the largest single-month increase in egg prices since June 2015, caused by an avian flu outbreak impacting the egg supply.
“The embers of inflation are not extinguished,” said Nate Gerze, an economic analyst at First Trust Portfolios. “We don’t think that the battle the Fed has had over the last two to three years is over.”