- U.S. inflation moved up to 3% in January, driven by housing-related cost increases.
- Egg prices jumped 15%, largest single-month price hike since 2015.
- New data likely to keep Fed on interest rate pause.
Price increases on U.S. consumer goods and services outpaced most economists' expectations in January as annual inflation crept up to 3% in the first month of the year, an increase from December’s 2.9% rate and a jump driven in large part by housing-related costs.
Wednesday’s Consumer Price Index Summary from the Labor Department finds overall prices moved up 0.5% on a monthly basis in January, outpacing the 0.4% increase from November to December.
The index for shelter, which accounts for nearly 30% of the CPI reading, rose 1.1% month over month to start the year. Shelter costs, computed by the Bureau of Labor Statistics utilizing data from new rents, existing lease agreements and a rent-equivalent calculation for owner-occupied properties, were up 4.4% on an annual basis in January.
“Shelter costs continue to be the main driver of core inflation as higher mortgage rates push more Americans into a rental market in which vacancy rates are near record lows,” Erik Norland, chief economist at CME Group, told CNBC.
Grocery prices moved up 0.5% in January, mostly thanks to the skyrocketing cost of eggs, a supply and demand dynamic roiled by widespread avian flu that has led to massive farm bird culls. Egg prices were up 15.2% from December to January, the biggest one-month increase since June 2015, according to the report, and are now over 50% more costly than a year ago.
Core inflation, a metric which strips out volatile food and energy prices, moved up 0.4% for the month and came in at a 3.3% annual rate in January, up 0.1% from the December annual reading.
Overall energy prices were up 1.1% on a monthly basis in January and gasoline moved up 1.8%, though prices at the pump across the U.S. were down 0.2% over the past 12 months.
According to Tuesday data from AAA, Utah’s average price per gallon of regular was $3.10, running below the national average of $3.15 per gallon. Utah gas prices were at $3.08 this time last month and $2.82 per gallon a year ago.
Mountain West states, which include Utah, had the lowest regional inflation in the country in January at 1.4%, according to the new report. The region saw a 0.1% uptick from December’s rate.
Wednesday’s report, along with recent employment data, is likely to extend the Federal Reserve’s pause on interest rate adjustments after closing out 2024 with three straight cuts that shaved 100 basis points, or 1%, from the monetary body’s overnight intra-bank lending rate.
New tariffs add to economic uncertainty
In a Wednesday posting on Truth Social ahead of the release of new inflation data, President Donald Trump called for lower rates and tied the demand to his tariff plans, saying, “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!” per CNBC.
Trump has so far issued tariffs targeting select goods from Canada, China and Mexico as well as an import-specific assessment on steel and aluminum. Earlier this month, Trump announced plans to impose 25% tariffs on goods from Mexico and Canada and 10% tariffs on goods imported from China. The plan also included a 10% tariff on energy resources from Canada.
But both Mexico and Canada earned 30-day delays on tariff implementations, which were due to kick in last week, after pledging to take actions aimed at reducing the flow of fentanyl across their borders into the United States.
The China tariffs went into effect as scheduled and the Asian economic powerhouse immediately hit back with its own new trade taxes on U.S. imports, targeting coal and liquified natural gas with a new 15% levy as well as 10% on U.S.-sourced crude oil, farm equipment and some automobile imports.
On Monday, Trump substantially raised tariffs on steel and aluminum imports to a flat 25% “without exceptions or exemptions” in a move he hopes will aid the struggling industries in the United States but which also risks sparking a multi-front trade war, and changing the course of the U.S. economy, per a report from Reuters. The measures are due to take effect on March 4.
The Fed enters wait-and-see mode
The Federal Reserve has avoided any direct weigh-ins on Trump’s policy directions, but at its January meeting last week, Fed Chairman Jerome Powell said a wait-and-see position was appropriate for the moment. He pointed to positive U.S. economic indicators, including GDP growth in the 2% to 2.5% range, a jobs market and unemployment rate that’s held relatively stable over the past six months and inflation that continues to move, albeit erratically, toward the Fed’s 2% goal.
At a press conference following the Fed’s two-day meeting on Jan. 29, Powell fielded numerous questions about what impacts policy changes promised by Trump would have on the economy. But the Fed leader noted the body makes its policy decisions based on economic data and doesn’t postulate on the shifting winds of political dialogue.
“I think where the committee is is very much in the mode of waiting to see what policies are enacted,” Powell said. “We don’t know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”