Inflation rose to 3% for the year ending in January, the Bureau of Labor Statistics reported Wednesday in an update to the consumer price index, a warning that price pressures are stronger than thought.
The hot report lowers the odds of further interest rate cuts from the Federal Reserve in the upcoming months.
Economists had predicted that inflation in the index would remain at 2.9% after increasing in December. The increase is bad for President Donald Trump, who has now inherited the economy from President Joe Biden.
On a month-to-month basis, inflation rose 0.5%.
“The long national nightmare of inflation isn’t over yet for consumers, businesses, and investors, but it sure looks like Federal Reserve interest rate cuts are over for now. Stay tuned,” said Chris Rupkey, chief economist at FWDBONDS.
This is the first CPI report of Trump’s presidency and will be closely scrutinized. Trump vowed to lower inflation on the campaign trail and won the election, in part, because of that commitment. The new report paints a full snapshot of how inflation evolved under Biden’s presidency. Overall, prices rose 21% from the time Biden entered office in 2021 until the time he departed this past month. Energy prices increased 33.5%, and food prices rose nearly 23.8%.
Core CPI inflation, which strips out volatile food and energy prices, rose to 3.3% for the year ending in January.
The inflation in January was driven in large part by shelter, as well as rising gas and grocery prices.
Egg prices, in particular, are soaring due to supply collapses resulting from the avian flu. Egg prices increased more than 15% in January alone, the largest increase in the eggs index since June 2015. Egg prices are up 53% from this time last year.
Officials at the Fed are watching the inflation numbers closely to determine whether to lower interest rates further to spur more economic activity or to forgo further rate cuts to try to tamp down inflation.
The Fed cut rates by a whole percentage point last year. As inflation proved sticky, though, the central bank opted to hold interest rates steady at its January meeting.
The Fed’s goal is 2% annual inflation.
Given the hotter report, expectations of a rate cut have been pushed back even more.
Investors now expect the next interest rate cut to come in September, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed. Before the Wednesday report, they were expecting a cut in May.
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The most recent jobs report also bolstered perceptions that the Fed is going to hold off on cutting rates in the near term.
That is because the report continued to show job growth and that the unemployment rate edged down a bit to 4%. The economy added 143,000 jobs in January, showing there is no desperate need to begin cutting rates to shore up the labor market.
