In January, inflation in the U.S. went up to 3%. This makes it more likely that the Federal Reserve, which controls interest rates, will keep rates the same and avoid cuts for now. The Consumer Price Index (CPI) showed prices jumped by 0.5% from December. This is the fastest increase we’ve seen since August 2023. Last month, inflation was at 2.9%.
The core CPI, which removes food and energy prices to see the main inflation trends, increased by 0.4% from December and jumped 3.3% over the year. Both numbers were higher than many experts predicted. Experts noted that inflation is still fluctuating, even though it has greatly decreased since peaking at just above 9% in 2022.
Austan Goolsbee, who leads the Chicago Federal Reserve, called the inflation numbers “sobering.” He cautioned against reading too much into just one report but acknowledged that if this trend continues, inflation still needs to be tackled.
In January, prices in consumer-watched areas, like groceries and gas, went up while prices for clothing and furniture fell. Grocery prices rose 0.5% from December and climbed 1.9% over the year. This is partly because there’s a nationwide shortage of eggs due to bird flu, causing egg prices to rise 15.2% in the last four weeks. Egg prices have swelled by 53% since last year.
Gas prices also increased by 1.8% this month, though they are slightly lower than last year. Prices for airline fares and hotel stays went up too, along with used cars and insurance. However, economists aren’t expecting the rise in these prices to last.
Housing prices, which many have been watching closely, saw a small increase of 0.4% in January and a year-over-year rise of 4.4%.
Jonathan Wright, a former Fed economist, believes inflation is “stuck” around 3%, making it tricky for the Fed to reach its 2% target. He pointed out that the chances of a rate increase are about the same as a rate cut in the near future.
Price pressures are present as President Trump’s policies create uncertainty for the economy. Decisions on tariffs and taxes will affect whether we see higher inflation or slower growth.
Republicans quickly blamed the Biden administration for rising prices. Some, including Rep. Jason Smith, said Trump is working to clean up the inflation “mess” left behind. In a social media post, Trump criticized Biden about inflation and suggested lowering interest rates, indicating a possible clash with the Fed, which has signaled little urgency for rate cuts.
Fed Chair Jerome Powell mentioned the latest inflation numbers, stating they show progress but that more work is needed. He emphasized that there’s no rush to lower rates just yet.
After the inflation report, traders pushed back the expected timeline for Fed interest rate cuts from September to December. Following this news, U.S. stocks and government bonds saw a decline.
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