By AP Economics Writer Christopher Al Gerber
WASHINGTON (AP) – U.S. inflation accelerated last month as costs for groceries, gasoline and rent increased. This is a disappointment from families and businesses that suffer from higher costs and stress 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.
New data shows that it has stubbornly surpassed the Fed’s 2% target for the past six months after a steady decline after about a year and a half. The price rise has turned into a major political hurdle for former President Joe Biden. President Donald Trump has pledged to lower the “day 1” price if elected, but most economists say that many of his proposed tariffs will at least temporarily increase costs. I’m worried that I can do this.
An unexpected boost to inflation could undermine some of the business enthusiasm that emerged after Trump’s election with his promise to cut regulations and cut taxes. The Dow fell 400 points in noon trading on Wednesday. Bond yields are rising, and sign traders expect inflation and interest rates to remain high.
“We’re not making any progress on inflation right now,” says Sarah House, senior economist at Wells Fargo. “This just extends the Fed’s hold.”
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.
But House said that inflationary stubbornness isn’t just a month’s blip. Consumers, especially the wealthy, still spend at a robust pace, with many companies having fewer reasons to lower prices. And while much of the decline in inflation in 2023 and early last year was attributed to improved supply chains, the trend has largely unfolded.
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.
Grocery prices rose just 0.5% in January, while egg prices rose 15.2%, the largest monthly increase since June 2015. Egg prices have risen 53% compared to a year ago.
The avian flu outbreak forced egg producers to cull from around 40 million birds from the flock in December and January. Stores impose restrictions on egg purchases, while restaurants charge extra for egg dishes.
Auto insurance costs continued to rise, up 2% from December to January. Hotel prices rose 1.4% last month, while the cost of one gallon of gas rose 1.8%.
Trump’s tariffs make life even more complicated for Phil Hannon, vice president of operations at ABT, a home appliance store in Glenview, Illinois. Approximately 60% of ABT’s sales are electrical appliances, large and small. The rest is home appliances such as televisions, computers and furniture.
Hannon hopes to raise prices by 3% to 15% soon in March to offset the impact of tariffs, including steel and aluminum operations.
He has received warnings from vendors over the past two weeks about final price increases, but they are not specific. To preempt the rise in costs, Hannon orders from suppliers for up to 90 days.
Hannon said many customers have already asked about price increases and when tariffs will arrive. He began seeing a notable pick-up of customers ordering products like washing machines to preempt customs duties.
Separately, Fed Chairman Jerome Powell said in testimony before the House Financial Services Committee on Wednesday that the Fed is “not there yet” and “has made great progress.”
“Today’s inflation print… I’m saying the same thing,” he added. As a result, the Fed wants to keep prices “limited for now.” At the current level, the Fed’s key rates limit borrowing and spending by consumers and businesses, Powell said.
The Fed cut its rate to around 4.3% in its last three meetings last year, as inflation fell sharply from its 9.1% peak in June 2022. In 2022 and 2023, they raised their benchmark rates to 5.3% height over two years to combat inflation.
Fed rates usually affect other borrowing costs for everything from mortgages to credit cards.
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.
One concern for economists is that product prices, excluding food and energy, rose 0.3% from the previous month to January. Prices for automobiles, furniture and appliances were flat or falling after the pandemic-derived supply chain twists were resolved. But now these prices are inscribed even before the tariffs begin.
Trump imposes a 25% tariff on steel and aluminum, which could increase the costs of automobiles, electrical appliances and industrial machinery. He also said earlier this week that he would impose “mutual tariffs” on countries with high obligations on US goods.
“There’s a stew of uncertainty that if it continues for the next few months and remains, we can see the business’s confidence fall apart,” said Anthony Saglimbene, chief market strategist at Ameriprise. It could reduce employment and investment, he said.
On Tuesday, Powell acknowledged that higher tariffs could raise inflation and limit central banks’ ability to cut interest rates, calling it a “possible outcome.”
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.”
AP retail writer Anne D’Nynenzio contributed to this report from New York.
Original issue: February 12, 2025 10:10am EST
