Mr. President, what happened to your plan to lower prices on Day One? https://t.co/eQWfS75Own
— Senator Chris Coons (@ChrisCoons) February 14, 2025
U.S. inflation rose to 3 percent in January, strengthening the case for the Federal Reserve to extend a pause on interest rate cuts. The Consumer Price Index (CPI) jumped more than expected, data from the Bureau of Labor Statistics showed on Wednesday, rising 0.5 percent from December in what was the fastest monthly increase since August 2023. “Core” CPI, which more closely reflects underlying inflation by removing volatile food and energy prices, also showed little improvement.
It rose 0.4 percent from December or 3.3 percent on a year-over-year basis, both higher than economists expected. The January data underscored the uneven nature of the central bank’s battle against high prices.
In addition to remarks from several Federal Reserve officials, the weekly look ahead for the global economy and markets includes:
The minutes of the Fed’s January policy meeting;
The final UMich sentiment survey data for January;
UK wage and CPI inflation data; and…— Mohamed A. El-Erian (@elerianm) February 16, 2025
Inflation has subsided drastically since cresting just above 9 percent in 2022, but progress in recent months has been much more sporadic.
A Bloomberg chart showing developments in four measures of consumer price inflation in the US. #economy #inflation #markets pic.twitter.com/WP1xR1WGA7
— Mohamed A. El-Erian (@elerianm) February 16, 2025
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, described the latest inflation report as “sobering.” He said he did not want to read too much into one inflation report, especially since it followed two months of more “encouraging” developments and noted that seasonal quirks were typical in January data. But he made clear that it was an unwelcome development. The rise in prices has become a significant political issue.
President Donald Trump has pledged to reduce prices if elected, although most economists worry that his policies could initially raise costs. This unexpected boost in inflation dampened some of the business optimism that had emerged after Trump’s election promises to reduce regulation and cut taxes. The Dow Jones Industrial Average fell 400 points in mid-day trading Wednesday, and bond yields rose, indicating traders expect inflation and interest rates to remain high.
Fed’s cautious response to inflation
“We’re really not making progress on inflation right now,” said Sarah House, senior economist at Wells Fargo. “This just extends the Fed’s hold.”
Inflation often jumps in January, as many companies raise their prices at the beginning of the year.
Yet, House noted that the inflation’s persistence wasn’t just a one-month anomaly. Robust consumer spending, particularly among wealthier individuals, continues to provide many companies with little incentive to keep prices low. Grocery prices increased by 0.5% in January, driven by a 15.2% surge in egg prices, the largest monthly increase since June 2015.
Egg prices have soared by 53% compared with a year ago due to an avian flu epidemic that forced producers to cull their flocks. Other costs also rose. Car insurance increased by 2% from December to January, hotel prices by 1.4%, and gasoline by 1.8%.
Phil Hannon, vice president of operations at Abt, a consumer electronics store in Glenview, Illinois, is dealing with increased costs due to Trump’s tariffs. Abt, which sells a large number of appliances and consumer electronics, expects to raise prices between 3% and 15% by March to offset the impact of tariffs on steel and aluminum. Separately, Federal Reserve Chair Jerome Powell said in testimony before the House Financial Services Committee that while the Fed has made progress on inflation, “we’re not quite there yet.” Powell emphasized that the Fed still aims to keep rates “restrictive” for now.
Early Wednesday, President Trump advocated on social media for lowering interest rates, arguing it would support economic growth.
