New inflation data out Wednesday showed headline consumer prices rose more than forecast in January as core prices reversed last month’s easing with the Federal Reserve’s path forward in focus.
The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 3.0% over the prior year in January, an uptick from December’s 2.9% annual gain in prices.
The index rose 0.5% over the previous month, a slight acceleration from the 0.4% increase seen in December and a miss compared to economists’ estimates of a 0.3% increase.
Seasonal factors like higher fuel costs and continued stickiness in food inflation kept the headline figures elevated. Notably, the index for eggs increased 15.2%, the largest increase since June 2015. It accounted for about two thirds of the total monthly food at home increase, according to the BLS.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in January climbed 0.4% over the prior month, higher than December’s 0.2% monthly gain, and 3.3% over last year. This marked an uptick from the 3.2% seen in December, which was the first time since July that year-over-year core CPI showed a deceleration in price growth.
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis with economists and Fed officials pointing to a “bumpy” road ahead.
Core inflation has remained stubbornly elevated due to sticky costs for shelter and services like insurance and medical care. Shelter did, however, show some signs of deceleration last month, rising 4.4% on an annual basis, the smallest 12-month increase in three years.
It was a different story for used car prices, which saw another strong uptick for the fourth consecutive month. The index rose 2.2% in January after a 1.2% increase in December and a 2% monthly gain in November.
The ascension of Donald Trump to the presidency has further muddied the inflation outlook, with some economists arguing the US could face another inflation resurgence as Trump commits to a protectionist trade policy. That’s likely to complicate the central bank’s path forward for interest rates.
On Monday, President Trump announced global 25% tariffs on steel and aluminum imports, which will take effect on March 12. 25% tariffs on Mexico and Canada are set to come next month, while 10% duties on China have already been implemented.
Shortly after the release, traders scaled back expectations of a Fed rate cut, pricing in just one cut from the central bank this year. Stock futures also sold off on the news.
