US inflation accelerated last month as costs for groceries, gas and used cars rose. This is a trend that is likely to underscore the Federal Reserve’s resolve to delay further interest rate cuts.
A year ago, when the consumer price index rose 3% in January, a Wednesday report from the Labor Bureau showed its rise from 2.9% the previous month. This is an increase from the low of 2.4% in September 3rd 1/2.
The numbers highlight the stickiness of inflation that has caused major political challenges for former President Joe Biden. President Donald Trump pledged to lower prices in his campaign last year, but most economists worry that many of his proposed tariffs could at least temporarily increase costs.
Excluding the volatile food and energy categories, Core consumer prices rose 3.3% in January, up from 3.2% in December compared to a year ago. Economists watch the core prices carefully, as they can better read the future path of inflation.
Inflation also worsened monthly, with prices rising 0.5% from December to January, the biggest increase since August 2023. Core prices rose 0.4% last month.
The government’s seasonal adjustment process is supposed to rule out these effects, but inflation often blew through January as many companies raise prices at the beginning of the year.
Later Wednesday, Federal Reserve Chairman Jerome Powell will testify before the House Financial Services Committee. There you may be asked about inflation and the Fed’s response to it. The Fed battled inflation in 2022 and 2023 by raising its benchmark rate to a two-year high of 5.3%. The rate was reduced to around 4.3% in the last three meetings last year, as inflation fell sharply from its 9.1% peak in June 2022.
Earlier on Wednesday, Trump said on social media that interest rates should be reduced. “We’ll hold hands with future tariffs!!!” However, consumer price ratings are less likely to make the Fed less likely to cut fees any time soon.
Fed officials are confident that inflation will decline over time, but would like to see further evidence that it is declining before further reducing the key rate. Fed rates usually affect other borrowing costs, such as mortgages, car loans, and credit cards.
The recent rise in inflation is the main reason the Federal Reserve has suspended interest rate cuts after implementing three people last year. On Tuesday, Federal Reserve Chairman Jerome Powell said “there is no need to hurry” to implement further cuts in testimony to the Senate Banking Committee.
The Trump administration’s tariff policies can raise prices in the coming months. Trump on Monday pledged a 25% tax on steel and aluminum imports and committed to more tariffs. Goldman Sachs economists predict that annual core inflation will drop to almost perfect points to 2.3% by the end of this year. However, they expect tariffs to increase year-end inflation to 2.8%.
On Tuesday, Federal Reserve Chairman Powell acknowledged that higher tariffs could raise inflation and limit central banks’ ability to cut fees.
However, he emphasized that it will depend on the number of imports hit by tariffs and how long it will take.
“In some cases, it doesn’t reach much of a consumer, so in some cases it does,” Powell said. “And that really depends on facts we haven’t seen yet.”
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