Inflation Rises in January, Stalling Fed's Progress
Inflation accelerated in January, rising 3% on an annual basis. This indicates that the Federal Reserve's efforts to bring inflation down to a 2% annual rate have stalled, at least temporarily.
The Consumer Price Index (CPI), a basket of goods and services typically bought by consumers, rose 0.5% on a monthly basis. This was higher than the 0.3% increase predicted by economists and marked the biggest monthly jump since August 2023.
Energy prices rose 2.4%, with gasoline prices increasing 6.1%.
Food prices rose 0.3%.
Housing costs rose 0.4%.
Medical care costs rose 0.4%.
Economists say that this "sticky inflation" data supports the Federal Reserve's decision last month to pause additional rate cuts. Fed Chair Jerome Powell told the Senate Banking Committee that the central bank does not need to rush to lower rates further.
However, some economists are concerned that inflation could pick up speed again due to new inflation risks, such as tariff hikes and a squeeze on labor supply growth. The new data also shows that inflation increased at the start of President Trump's second administration, which has signaled its intention to enact broad-based tariffs.
These tariffs, if enacted, could push inflation higher in 2025, economists are forecasting.
What This Means for Your Money
The Fed's pause on additional rate cuts means that consumers are likely to pay more for loans and other debt, ranging from credit cards to auto loans. Mortgage rates also aren't likely to see relief anytime soon, despite Fed cuts in 2024.
"Progress on mortgage rates is only expected to occur when inflation is contained," noted National Association of Realtors chief economist Lawrence Yun.