The latest data from the Bureau of Labor Statistics reveals an unexpected surge in US consumer prices for January, with the Consumer Price Index (CPI) rising 0.3% over the previous month and 3.1% over the prior year. This defies forecasts for a faster slowdown, surpassing economist predictions of a 0.2% month-over-month increase and a 2.9% annual gain.
On a “core” basis, excluding volatile costs of food and gas, prices climbed 0.4% over the previous month and 3.9% over last year. The inflation print has triggered market reactions, leading to a 94% probability that the Federal Reserve will maintain interest rates at its upcoming meeting.
Shelter and food prices have remained persistent, contributing to higher core inflation. Notable increases include the shelter index rising 6% annually and 0.6% month over month. The index for rent and owners’ equivalent rent also saw monthly increases of 0.4% and 0.6%, respectively.
While some indexes, such as motor vehicle insurance and medical care, rose in January, others like used cars and trucks, and apparel experienced decreases. Energy prices continued to decline, with fuel oil leading the drop by decreasing 4.5% from December to January.
The report has implications for the Federal Reserve’s interest rate decisions, as annual inflation stays above the 2% target. The core Personal Consumption Expenditures (PCE) price index, however, remains below that rate on a six-month annualized basis, challenging expectations of rate cuts. Analysts now anticipate delays in rate cuts, with some suggesting a potential pullback in the stock market due to the unexpected inflation print.
