US Consumer Prices Rise Slightly, But Inflationary Pressures Continue
US consumer prices rose less than expected in January amid cheaper fuel and moderate rent inflation, but households faced higher utility costs, suggesting little urgency for the Federal Reserve to start cutting interest rates again before the summer.
The Consumer Price Index report from the Labor Department on Friday showed inflationary pressures were rising last month, as businesses are likely to push ahead with price increases for goods and services at the start of the year, including personal care, entertainment and the cost of flights and hospital services.
The drop in inflation was welcomed by the White House, whose spokesman wrote on social media that “the US economy will grow significantly with the Fed’s long overdue interest rate cut.” Americans who are concerned about the job market and their inability to pay their bills have been disturbed by President Donald Trump’s handling of the economy.
The report follows on the heels of news this week of an increase in the pace of job growth in January and a drop in the unemployment rate to 4.3% from 4.4% in December.
“Overall, the data suggest that price pressures remain too hot for comfort at the moment, but the direction of inflation continues to look low, even if this has proven to be a difficult and slow process,” said James McCann, senior economist, investment strategy at Edward Jones. “For the Fed, this is unlikely to change much in the near term.”
The Consumer Price Index rose 0.2% last month after an unrevised gain of 0.3% in December, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast CPI to rise 0.3%. For the January CPI report, the BLS published recalculated seasonally adjusted factors to reflect price movements in 2025.
The report was slightly delayed by last week’s shutdown of the federal government for three days. Some economists attributed January’s positive headline reading to the volatility of CPI data caused by last year’s shutdown that prevented the collection of October prices.
Lodging costs, which include rents and motels and hotels, rose 0.2% after rising 0.4% in December. Food prices rose 0.2% after accelerating 0.7% last month. Grocery store prices rose 0.2% as expensive grains and baked goods sold 0.4% lower than beef and veal prices.
Eggs and coffee were also cheaper last month as were fresh fruit and vegetables. The Trump administration rolled back and reduced tariffs on some imported foods. However, food prices increased by 2.9% from last year.
Consumers also found more relief at the pump, as gasoline prices fell 3.2% in January from December. While electricity prices fell 0.1%, they rose 6.3% year-over-year, reflecting demand from data centers to power artificial intelligence.
In the 12 months to January, the CPI increased by 2.4%. The drop in the annual inflation rate from 2.7% in December showed a lot of last year’s figures coming out of the calculation. The tamer inflation numbers were unlikely to resonate with consumers.
“The primary explanation for the gap is that households focus on the price level while inflation measures price changes, but the second is the behavior of household essentials,” said Eric Winograd, an economist at AllianceBernstein. “The prices of food, medicine and rent are rising faster than the chain as a whole, and those prices are more important for households than the whole basket.”
Financial markets have raised the prospect of a June rate cut. The Fed last month left its overnight interest rate at 3.50%-3.75%. Stocks on Wall Street were trading lower amid the technology sector. The dollar has gained against a basket of currencies. US Treasury yields have fallen.
Inflation was high in January
Excluding the volatile food and energy components, CPI rose 0.3% after an unrevised 0.2% rise in December. Part of the increase in the so-called core CPI may have reflected one-time price increases over the course of the year, which economists said are not fully accounted for by seasonal adjustment factors, a model used by the BLS to remove seasonal fluctuations in the data.
Personal care spending increased by 1.2%, while entertainment increased by 0.5% and communication increased by 0.5%. Spending continued, albeit mildly. Prices of goods increased by 0.3%, while the cost of household furniture and equipment increased by 0.3%.
Prescription drug prices have not changed. A 1.8% drop in used car and truck prices helped keep commodity prices low for the second month in a row. Prices of core goods excluding cars rose 0.4%, the most since February 2023.
Expenditure on non-energy services rose 0.4% after rising 0.3% in December. Services added a 6.5% increase in air fares. Health care costs increased by 0.3%, hospital services prices increased by 0.9% and physician services increased by 0.3%. Owner-equity rents rose 0.2% after gaining 0.3% in December.
There was also an increase in the prices of services for recreation, hair cutting as well as education and communication. But car insurance rates are falling.
In the 12 months to January, the so-called core CPI increased by 2.5%. That was the smallest gain since March 2021 and followed a 2.6% advance in December. That also showed a drop from last year’s high reading.
The Fed is tracking the Consumer Price Index with a 2% inflation target. Both measures are more effective than intended. Based on CPI data, economic estimates for the January increase in core PCE inflation range from 0.2% to 0.5%. Annual estimates for January core PCE inflation were between 2.9% and 3.2% increases. The government will publish PCE inflation data for December next week.
Economists expect inflation to persist for a while this year, citing a surge in import taxes and the dollar’s decline last year against the currencies of the United States’ major trading partners. The trade-weighted US dollar has fallen about 7.4% over the past year.
“We expect inflation to remain strong in the first half of the year,” said Lydia Boussour, senior economist at EY-Parthenon. “The decline in CPI inflation caused by a gap in data collection during the government shutdown will continue to distort data in April.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
