Many commonly purchased goods and services got more expensive in January, driving inflation in the wrong direction and to its highest rate since June of last year.
Consumer prices rose 0.5% from December -- the fastest pace since September 2023 -- resulting in an annual inflation rate of 3% for the 12 months that ended in January, according to the latest Consumer Price Index data released Wednesday by the Bureau of Labor Statistics.
Economists were expecting Wednesday's report to be fairly unexciting, with barely any change from December's data.
Instead, the January report came in hot pretty much across the board -- an unwelcome surprise at a time when the cost of living continues to weigh on Americans, the Federal Reserve is wanting to see inflation slow, and uncertainty is brewing as to how President Donald Trump's heavy-handed tariffs and other policies could affect prices.
"The long national nightmare of inflation isn't over yet for consumers, businesses, and investors," Chris Rupkey, chief economist at FwdBonds, wrote in commentary issued Wednesday morning. "There could be some seasonality that pushes prices up at a faster clip in January, but today the news for [Federal Reserve] officials is all bad."
US stocks dropped Wednesday, with investors concerned that inflation has reversed its recent progress and could lead to higher interest rates. The Dow was around 395 points lower at the opening bell, with the S&P 500 down 1% and the Nasdaq Composite declining by 1.1%. The 10-year Treasury yield surged to 4.6% on the hotter-than-expected data.
The CPI measures price changes across commonly purchased goods and services, and most of the categories saw increases last month. Energy and food costs continued to bite -- particularly for eggs, which have seen prices soar due to a deadly avian flu.
Egg prices shot up 15.2% from December to January, the fastest increase that index has seen since 2015, according to the report. They're up 53% year over year.
Economists were expecting inflation to pick up 0.3% from December, keeping the annual rate at 2.9%, according to FactSet consensus estimates.
Food and energy can be quite volatile and influenced heavily by circumstances such as weather, disease, supply chain challenges and global strife. So economists look to a "core" index of CPI, which strips out food and energy, as a way to gauge progress on underlying inflation.
Even core moved higher in January: It jumped 0.4% on a monthly basis, bringing the annual rate up to 3.3% from 3.2%.
Inflation has slowed significantly since hitting a 40-year high in 2022. However, prices are still rising faster than Americans were used to in the decade before the pandemic, underscoring the challenges ahead for Trump.
They're also moving in the opposite direction of the Fed's target.
While data can be volatile on a monthly basis, economists cautioned that the current trajectory could keep the central bank on the sidelines this year. That would mean interest rates remaining high for consumers and businesses.
That's the opposite of what Trump wants to see.
"Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!" Trump posted Wednesday on his TruthSocial platform prior to CPI's release.
Mainstream economists largely agree that Trump's tariff plan will reignite inflation and slow US economic growth.
This story is developing and will be updated.
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