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 CPI print marks an unwelcome re-acceleration in prices to start off 2025," Jason Pride, chief of investment strategy and research at Glenmede, wrote this 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.

The first major data releases covering 2025 will make the outlook for further Fed rate cuts murkier.

State of play: Unexpectedly high January inflation came on the heels of jobs data that showed a drop in the unemployment rate and an uptick in the pace of wage growth.

• Higher inflation and a tightening job market are decidedly not a recipe for further easing of interest rates.
• Markets are now reflecting that skepticism. Bond yields spiked following the CPI data, and futures now put 29% odds on no further rate cuts this year, per CME's FedWatch tool, up from 10% odds a week ago.

The intrigue: The Fed's decision to cut interest rates in December, over some internal opposition, now looks even more questionable in light of the January data.

• At the time, Cleveland Fed president Beth Hammack dissented, believing rates had been cut enough already. Three additional (anonymous) officials believed further rate cuts were not warranted in their economic projections.

The bottom line: "I would say we're close, but not there on inflation," Powell said this morning before the House Financial Services Committee. "You can see today's inflation print, which says the same thing."