U.S. inflation climbed to 3% in January, potentially reinforcing the Federal Reserve’s decision to hold off on interest rate cuts.
Data from the Bureau of Labor Statistics released Wednesday, Feb. 12 showed the Consumer Price Index (CPI) rising 0.5% from December, marking the fastest monthly increase since August 2023. On an annual basis, inflation stood at 2.9% last month.
The latest figures highlight the ongoing challenges in the Federal Reserve’s efforts to curb inflation. While inflation has fallen significantly from its peak of over 9% in 2022, recent progress has been inconsistent.
CPI represents a basket of the most common goods and services purchased by consumers and it serves as an effective indicator of current inflation rates. This CPI report saw prices continue the upward trend since November 2024, potentially complicating the next FOMC meeting in mid-March.
Core CPI, which excludes food and energy (the categories with the most volatile prices), showed an even starker image. With an increase of 0.4% month-over-month and a 3.3% increase year-over-year, underlying inflation appears to be continuing the trend since November 2024 of slowly ticking upwards.
Fuel oil and used vehicles saw the largest increases since last month with month-over-month CPI being 6.2% and 2.2% respectively, whereas clothing apparel saw the largest decline in CPI since December at -1.4%. Food saw a more modest increase of 0.4%, leaving it with a year-over-year CPI of about 2.5%. Energy experienced a more substantial month-over-month increase of 1.1%, though this could likely be attributed to higher demand in winter months as the year-over-year rate remains relatively low at around 1%.
The three-month trend of increasing inflation will even further complicate the picture for the Fed, which will make its next decision on interest rates in March. In the previous FOMC meeting at the end of January, the Federal Reserve made the decision to maintain interest rates at their current level, a pause in the rate cuts made since September 2024.
Federal Reserve Chairman Jerome Powell indicated that the stubborn nature of inflation and recent strength in the job market led them to the decision, saying, “The broad sense of the committee is that we don’t need to be in a hurry to adjust our policy stance.”
It is likely that the increase in January CPI will alienate the FOMC from further rate cuts, despite attempts by the Trump administration to encourage the Fed to lower interest rates to “go hand in hand with upcoming [t]ariffs.” Instead, the maintenance of a strong labor market despite elevated rates will likely keep the Fed from lowering rates until inflation has been quelled.