Inflation surged 6.4% in January, higher than expected

Inflation came in hotter than expected in January, stoking fears that the Federal Reserve will become even more aggressive in its fight to bring down prices.

The January reading of the Consumer Price Index – a closely watched measure of inflation that tracks fluctuations in the costs of everyday goods and services – rose 6.4% compared to the same month one year ago.

The decline marked the seventh straight month that prices have fallen year-over-year.

But on a monthly basis, prices increased 0.5% compared to December, according to the Bureau of Labor Statistics’ release on Tuesday.

Core inflation, a measure that excludes volatile food and energy prices, rose 5.6% year-over-year. On an annual basis, both overall and core inflation increased at their smallest rate since the fourth quarter of 2021.

Ahead of the January Consumer Price Index’s release, economists expected inflation to rise by 6.2% year over year and by 0.4% from December to January.

American households are still under severe financial strain from sky-high grocery bills, rent payments and utilities. Gas prices jumped by 30 cents in January, according to AAA, adding more pain at the pump for US motorists.

Housing prices were “by far the largest contributor” to the monthly rise of overall inflation, according to the BLS. The shelter index jumped by 7.9% in January compared to the same month one year ago.

Grocery prices also stayed uncomfortably high last month. The “food at home” index, which measures the cost of groceries, jumped by 10.1% year-over-year. The overall food index rose by 6.4%.

Egg prices continued to skyrocket, soaring by a whopping 70.1% as a severe avian flu outbreak hurts supply. Dairy products jumped 14% and coffee increased 12.8%.

The cost of energy services, such as electricity and utility gas surged by 27.7%.

“There is nothing in this CPI report to deter Fed from staying the course of another quarter-point interest rate hike, but there will still be another round of employment and inflation reports prior to the conclusion of the Federal Reserve’s next meeting,” Bankrate chief analyst Greg McBride said.

Stock futures seesawed as investors digested the hotter-than-expected January CPI report. The Dow Jones Industrial Average, the tech-heavy Nasdaq and the broad-based S&P 500 were each trending in slightly negative territory.  

Central bank officials have noted progress in the bank’s effort to tame prices – with Fed Chair Jerome Powell declaring earlier this month that the “disinflationary process has begun.” Inflation peaked at a decades-high level of 9.1% last June.

However, Powell and his colleagues implemented another quarter percentage point increase at their last meeting and said “ongoing increases” in the Fed’s benchmark interest rate were still necessary to ensure that inflation returns to its target level of 2%.

“There’s been an expectation that it’ll go away quickly and painlessly,” Powell said during a speech earlier this month. “I don’t think that’s at all guaranteed.”

The market is pricing in a 91% probability of another quarter percentage point interest rate hike when the Fed next meets on March 21-22, according to CME Group data.