U.S. inflation accelerated last month as the cost of groceries, gasoline, and rents rose, a worrying trend for families and businesses grappling with higher costs. This development is likely to reinforce the Federal Reserve’s stance to delay further interest rate cuts. The consumer price index increased by 3% in January from a year ago, up from 2.9% the previous month, according to data released by the Labor Department on Wednesday.
This marks a continuous period of inflation remaining above the Federal Reserve’s 2% target for the past six months, after a steady decline for about a year and a half. Elevated prices have become a significant political challenge, with President Donald Trump pledging to reduce prices if elected. Signs of the impact of rising prices were evident in the financial markets, with the Dow falling 400 points in mid-day trading on Wednesday and bond yields rising, indicating that traders expect inflation and interest rates to remain high.
Economists express concerns over the higher inflation ahead. Sarah House, senior economist at Wells Fargo, commented, “We’re really not making progress on inflation right now. This just extends the Fed’s hold.”
Figures show that core consumer prices, which exclude the volatile food and energy categories, rose 3.3% in January compared to a year ago, up from 3.2% in December.
Monthly inflation also increased, with prices jumping 0.5% in January from December, marking the largest increase since August 2023. Core prices climbed 0.4% last month, the most significant rise since March 2024. Grocery prices alone surged by 0.5% just in January, driven by a significant 15.2% increase in egg prices—the most substantial monthly increase since June 2015.
Inflation pressures extend federal hold
Egg prices have soared 53% compared to a year ago due to an avian flu epidemic that forced producers to cull their flocks in December and January. Consequently, stores have imposed restrictions on egg purchases, and restaurants have placed surcharges on egg dishes.
Further contributing to overall inflation, car insurance costs jumped 2% from December to January. Hotel prices saw a 1.4% increase last month, while the price of a gallon of gasoline rose by 1.8%. Phil Hannon, vice president of operations at Abt, a consumer electronics store in Glenview, Illinois, remarked that Trump’s tariffs have complicated matters.
Hannon anticipates raising prices between 3% and 15% as soon as March to offset the impact of tariffs on steel and aluminum. He has been securing orders from suppliers for up to 90 days to stay ahead of cost increases. Fed Chair Jerome Powell, in testimony before the House Financial Services Committee on Wednesday, emphasized that the Fed is focusing on curbing inflation but acknowledged that more needs to be done.
“We’re not quite there yet,” Powell said, adding that the Fed aims to keep rates restrictive for now. With inflation significantly down from its peak of 9.1% in June 2022, the Fed cut its benchmark rate to about 4.3% in its last three meetings in 2024. The rate, which had been raised to a two-decade high of 5.3% to combat inflation, typically influences other borrowing costs, affecting everything from mortgages to credit cards.
Early Wednesday, Trump commented on social media that interest rates should be lowered, aligning with his future plans to address the inflation issue if elected.
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