Inflation Just Ticked Up Again, Startling Economists

New economic data released yesterday painted a picture that nobody wants to see: Last month, inflation climbed higher than forecast, slimming the odds that the Fed will continue lowering interest rates soon.

Top line: Pricier fuel oil, food, used cars, and auto insurance drove overall consumer prices to increase 0.5% from December to January, according to the Department of Labor. That’s the quickest monthly rise since August 2023, and it exceeded expectations of 0.3%. Full-year inflation came in at 3%, up from a rate of 2.9% in December that economists thought would hold steady.

• Egg prices spiked by 15.2%—a ~10-year record—to account for ~two-thirds of monthly grocery inflation. The price of eggs is up 53% over the past year.
• When excluding volatile food and energy costs, core consumer prices still logged their highest monthly jump in almost two years and reached 3.3% year over year inflation, surpassing 68 out of 73 forecasts that Bloomberg surveyed.

“We are close, but not there on inflation,” Fed Chair Jerome Powell said at a congressional hearing yesterday after the data was released, signaling that the Federal Reserve is in no rush to cut rates. Traders now believe there’s a 30% chance there won’t be any rate cuts this year, up from 20% earlier this week, according to CME Group. Economists widely agree that interest rates could hold steady between 4.25% and 4.5% through the summer if inflation doesn’t ease.

Looking ahead…the Fed is in major wait-and-see mode, especially because economists—and even Sen. Mitch McConnell—warn that President Donald Trump’s tariffs could spike consumer prices. Trump’s first-term tariffs trickled down to consumers’ wallets in about two months, so the 10% import tax on all Chinese goods that went into effect on Sunday could raise some prices at your local stores by April, according to the Wall Street Journal.—ML