Inflation surged higher than expected in January, dimming hopes for near-term interest rate cuts by the Federal Reserve. According to the Department of Labor, consumer prices rose 0.5% last month, the sharpest increase since August 2023, outpacing economists’ forecast of 0.3%. Annual inflation ticked up to 3%, up from December’s 2.9%.
Higher costs for fuel oil, food, used cars, and auto insurance drove the spike. Egg prices led grocery inflation, soaring 15.2% in January—the biggest monthly rise in a decade—making up about two-thirds of grocery price increases. Over the past year, eggs have climbed an astonishing 53%.
Even excluding volatile food and energy prices, core inflation logged its highest monthly jump in nearly two years. Core prices rose 3.3% yearly, exceeding 68 out of 73 forecasts in a Bloomberg survey.
“We are close, but not there on inflation,” Federal Reserve Chair Jerome Powell said during a congressional hearing after the report’s release. Powell’s comments underscore the Fed’s caution about lowering rates prematurely.
According to CME Group, the data has shifted market expectations, with traders now assigning a 30% chance that rates won’t drop at all this year, up from 20% earlier this week. Economists broadly agree that rates could stay between 4.25% and 4.5% through the summer if inflation doesn’t ease further.
Source: Bloomberg