Inflation surges ahead, warning price pressures still persist
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Inflation surged ahead to start 2025, crimping Americans' buying power and serving as a warning to policymakers — whether those contemplating new tariffs or further interest rate cuts — that price pressures are not yet vanquished.
Why it matters: Economic policymakers have described the disinflation process as a bumpy road. The past six months instead look like an uphill path.
- Prices flatlined last summer but have risen at a 4.5% annual rate over the last three months, far above the Fed's goals and the highest since fall 2022.
What they're saying: "There's a déjà vu element here — 2024 also started with a few hot inflation prints that forced a big reassessment of rate-cutting expectations," JPMorgan Wealth Management's Elyse Ausenbaugh wrote in a note.
- "No matter how you slice the data, the January [Consumer Price Index] print marks an unwelcome re-acceleration in prices to start off 2025," Jason Pride, chief of investment strategy and research at Glenmede, wrote Wednesday morning.
By the numbers: For consumers, the report might just quantify what they have experienced in grocery stores — especially in the egg aisle, where prices rose 15% in January, with a 53% price gain over the past year.
- The CPI's overall monthly gain was the largest since the summer of 2023, pushed up in part by the biggest rise in grocery prices in almost three years.
- There were also outsized price increases in January for used vehicles (up 2.2%), prescription drugs (2.5%), hotels (1.7%) and auto insurance (2%).
Between the lines: Core CPI, excluding volatile food and energy, also moved in the wrong direction, ticking up 0.4% in January.
- On a three-month annualized basis, core CPI rose 3.8%, the highest since last April.
The report has at least one silver lining: Shelter inflation is much less alarming, with the overall index up 4.4% over the last year. That's the smallest 12-month gain in three years.
- Rents rose 0.3% for the second straight month, while owners' equivalent rent — how much it would cost homeowners to rent their own homes — rose by a similar amount.
Yes, but: Inflation data can be volatile in January, when companies tend to implement price increases.
- Even so, further progress on inflation has been stalling for months.
- The seasonal adjustment process may be exaggerating January inflation, due to the lingering effects of earlier inflation surges on the adjustment process.
- The economic backdrop, however, remains favorable: The labor market is strong with steadily rising pay — an outcome that has kept consumer spending strong.
