Inflation Was Higher Than Expected in January, a Worrying Sign for the Fed

Overall prices cooled slightly from a year ago, but the report included worrying signs for the Federal Reserve.

Inflation cooled less than expected in January and showed worrying staying power after volatile food and fuel costs were stripped out — a reminder that bringing price increases under control remains a fraught, bumpy process.

The overall Consumer Price Index was up 3.1 percent from a year earlier, which was down from 3.4 percent in December but more than the 2.9 percent that economists had forecast. That figure is down from the latest peak of 9.1 percent in the summer of 2022.

But after stripping out food and fuel, which bounce around in price from month to month, “core” prices held roughly steady on an annual basis, climbing 3.9 percent from a year earlier. The measure jumped by the most in eight months on a monthly basis.

American consumers, the White House and Federal Reserve officials had welcomed a recent moderation in inflation. Central bankers in particular are likely to take the fresh report as a reminder that they need to remain cautious. Policymakers have been careful to avoid declaring victory over inflation, insisting that they needed more evidence that it was coming down sustainably.

Investors sharply pared back chances for an imminent Fed rate cut, betting that central bankers will not lower interest rates at their next meeting in March and sharply dialing back the odds that the Fed will do so even at its meeting in May — a sign that they think the fresh inflation figures will keep officials wary. Stock markets tumbled as traders revised their forecasts for Fed actions.

Fed policymakers have raised interest rates to about 5.3 percent, up from near zero in early 2022, in a bid to cool consumer and business demand and force companies to stop raising prices so quickly. Because inflation has been coming down notably in recent months, they have paused their rate increases and are contemplating when and how much to lower borrowing costs.


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A bar chart showing the December-to-January changes in a selection of categories of the Consumer Price Index, adjusted for seasonality. 16 of the 24 categories shown rose led by piped utility gas service and hospital services. At a declines of 4.5 and 3.4 percent, fuel oil and used cars and trucks fell the most.

Monthly changes in January

Piped utility gas service

+2.0

%

Hospital services

+1.6

Motor vehicle insurance

+1.4

Airline fares

+1.4

Nonalcoholic beverages

+1.2

Electricity

+1.2

Motor vehicle maintenance

+0.8

Physicians’ services

+0.6

Food away from home

+0.5

Fruits, vegetables

+0.4

All items excl. food and energy

+0.4

Rent of primary residence

+0.4

All items

+0.3

Alcoholic beverages

+0.3

Tobacco, smoking products

+0.3

Dairy and related products

+0.2

Meats, poultry, fish, eggs

0

New vehicles

0

Cereals, bakery products

–0.2

%

Medical care commodities

–0.6

Apparel

–0.7

Gasoline (all types)

–3.3

Used cars, trucks

–3.4

Fuel oil

–4.5

Monthly changes in January

Piped utility gas service

+2.0

%

Hospital services

+1.6

Motor vehicle insurance

+1.4

Airline fares

+1.4

Nonalcoholic beverages and materials

+1.2

Electricity

+1.2

Motor vehicle maintenance and repair

+0.8

Physicians’ services

+0.6

Food away from home

+0.5

Fruits and vegetables

+0.4

All items excluding food and energy

+0.4

Rent of primary residence

+0.4

All items

+0.3

Alcoholic beverages

+0.3

Tobacco and smoking products

+0.3

Dairy and related products

+0.2

Meats, poultry, fish and eggs

0

New vehicles

0

Cereals and bakery products

–0.2

%

Medical care commodities

–0.6

Apparel

–0.7

Gasoline (all types)

–3.3

Used cars and trucks

–3.4

Fuel oil

–4.5

December-to-January changes in a selection of categories of the Consumer Price Index, adjusted for seasonality.

Source: Bureau of Labor Statistics

By Karl Russell

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