U.S. inflation surprises in January: What does it mean for markets?
Core inflation rose to 3.3% year-over-year, with the shelter index as the largest contributor.
The Consumer Price Index (CPI) increased 0.5% month-over-month in January, exceeding the 0.3% forecast. On an annual basis, headline inflation reached 3.0%, also above the 2.9% estimate.
Key factors driving the increase:
- Shelter: +0.4% in January, accounting for nearly 30% of the monthly increase. The annual rise was 4.4%.
- Energy: +1.1% month-over-month, with gasoline rising +1.8%.
- Food: +0.4% month-over-month; egg prices surged 15.2% due to avian flu.
Core inflation (excluding food and energy) increased 0.4% month-over-month and 3.3% year-over-year, exceeding estimates. Other notable increases were seen in auto insurance, recreation, and healthcare.
What’s Next?
Although inflation has cooled from its 2022 peaks, housing costs continue to exert pressure. Jerome Powell reiterated that the Fed is in no rush to cut rates, and markets now anticipate that the first-rate cut could be delayed until the second half of the year.
Annual change (%) of the general and underlying consumer price index (CPI) (Core CPI)
Source: US Bureau of Labor Statistics
