US inflation rose unexpectedly in January — prompting President Trump to slam his predecessor Joe Biden as the downbeat numbers dimmed hopes for interest rate cuts.
The Consumer Price Index rose 3% over the past 12 months after advancing 2.9% in December, the Bureau of Labor Statistics said on Wednesday.
Economists had forecast January’s CPI to come in at 2.9%, with the increase likely partly due to businesses raising prices at the start of the year.
“BIDEN INFLATION UP!” Trump wrote on Truth Social shortly after the data was released..
Before the CPI was announced, Trump called on the Fed to immediately slash interest rates.
“’Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!” he wrote.
Many economists have warned that Trump’s threatened tariffs would spike inflation and Powell on Tuesday told Senators on Capitol Hill that the Fed was in no rush to slash interest rates.
“Fed rate cuts are a no-go for the foreseeable future,” Kathy Jones, chief fixed income strategist at Charles Schwab, said Wednesday.
The Dow plunged nearly 400 points after the opening bell as investors feared a possible rate hike.
“If consumer prices or inflation expectations rise any further, it is quite possible that the Fed’s next move is to raise short term interest rates,” Skyler Weinand, chief investment officer at Regan Capital, wrote in a note.
The CPI jumped 0.5% last month, the biggest gain since August 2023, after rising 0.4% in December, the Labor Department’s Bureau of Labor Statistics (BLS) said.
Shelter, which includes rents, increased 0.4% and accounted for nearly 30% of the rise in the CPI. That followed two straight monthly gains of 0.3%.
Food prices rose 0.4% after increasing 0.3% in December. Grocery store prices surged 0.5%, with the cost of eggs soaring 15.2%, the largest increase since June 2015.
That accounted for about two-thirds of the rise in prices at the supermarket. An avian flu outbreak has caused a shortage of eggs, driving up prices.
Prices also rose for meats, poultry and fish as well as for nonalcoholic beverages and dairy products. Gasoline prices rose 1.8% while natural gas cost 1.8% more, but electricity prices were unchanged.
Trump early this month suspended a highly telegraphed 25% tariff on goods from Canada and Mexico until March. But a 10% additional tariff on Chinese goods went into effect this month.
Consumers’ one-year inflation expectations surged to a 15-month high in early February as households perceived that “it may be too late to avoid the negative impact of tariff policy,” a University of Michigan survey of consumers showed last week.
Combined with a stable labor market, Bank of America Securities continues to believe that the Fed policy easing cycle is over.
The central bank left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, having reduced it by 100 basis points since September, when it embarked on its policy easing cycle.
The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation that had reached a four-decade high under Biden.
The Federal Reserve’s next meeting will be held March 18-19.
