The CPI Inflation rate rose higher than economists expected in January. Core CPI was also up.
The Consumer Price Index (CPI), a key gauge for inflation, came in hotter than expected, rising to 3% in January, according to the Bureau of Labor Statistics.
It is the fourth straight month that the inflation rate has risen since hitting a recent low of 2.4% in September. It is also the highest the CPI has been since last June when it hit 3%.
The inflation rate is up from 2.9% in December. It was also higher than the 2.8% rate that economists had expected.
The markets were moving lower on the news, as the Dow Jones Industrial Average was down about 465 points, or 1%, while the S&P 500 was off 50 points, or 0.8%, shortly after the market opened. The Nasdaq was down 140 points, or 0.7%, while the Russell 2000 fell 12 points or 0.5%. But as the day went on, the indexes trimmed their losses.
Core CPI also climbs
While the CPI has risen for the past four months, core CPI – which excludes more volatile food and energy costs – had been holding steady. In fact, core CPI actually dropped in December to 3.2%, from 3.3% the previous month.
But in January, the core CPI rose for the first time since September, climbing back up to 3.3%. Economists had predicted that core CPI would fall to 3.1% in January.
For the month, prices rose 0.5%, up from 0.4% in January. The 0.5% increase was the highest since August of 2023. Economists had anticipated a 0.3% increase.
Core CPI was up 0.4%, up from 0.3% in December and higher than estimates of 0.3%. It was the highest monthly increase in core CPI since March of 2024.
Egg prices soar
Food prices rose 0.4% in January, the highest in at least six months. They are up 2.5% over the past 12 months. Food at home prices rose 0.5%, while food away from home was up 0.2% for the month.
Four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish, and eggs up 1.9% for the month. The price of eggs skyrocketed 15.2% in January, the highest increase since June of 2015.
Also, energy prices rose 1.1% in January, down from 2.4% in January. Further, shelter costs jumped 0.4% last month, or 4.4% over the past 12 months.
“As we saw through 2024, shelter inflation will continue to take time to get back to reasonable levels,” Josh Hirt, Vanguard senior U.S. economist, said. “Today’s shelter report was driven by substantial increases in home insurance and in lodging away-from-home – a volatile component that encompasses hotels and travel related lodging establishments. We continue to hold the view that shelter inflation will eventually moderate over the course of 2025.”
Rates not expected to go lower any time soon
The inflation report caused stocks to move lower across the board. It also lowered any expectations that rates would come down any time soon.
According to CME’s FedWatch, 97.5% of interest rate traders expect rates to stay the same in March. That’s higher than 83% just one week ago. And 88% expect no movement on rates at the May meeting, up from 78% just a week ago.
Further, 65% anticipate the Fed holding rates at 4.25% to 4.50% in June while 57% anticipate rates staying at 4.25% to 4.50 in July.
It isn’t until September of 2025 that a majority of interest rate traders anticipate rates moving down, with 43% saying they will stay at 4.25% to 4.50% while 41% expect a 25-basis point cut and 16% expecting a 50-point or more cut in September.
Several market strategists weighed in on where they see rates headed, including Josh Jamner, investment strategy analyst at ClearBridge Investments.
“The ‘wait and see’ Fed is going to be waiting longer than anticipated after a red-hot January CPI inflation report,” Jamner stated, reported CNBC. “This report puts the final nail in the coffin for the rate cut cycle, which we believe is over.”
Powell testifies before House
Fed Chair Jerome Powell testified before the House Financial Services Committee on Wednesday, delivering the same opening statement that he did on Tuesday before the Senate.
President Donald Trump said early Wednesday that interest rates should be lowered. Powell was asked about it at the House testimony, and had no comment, but did say the Fed would not be influenced by such statements.
Powell also said that if inflation rises, the Fed will use its tools, including interest rates, to lower it to the target range.
