US inflation surges in January, dimming hopes for Fed rate cuts

U.S. consumer prices increased more than expected in January, reinforcing the Federal Reserve's message that it was in no rush to resume cutting interest rates amid growing uncertainty over the economy.

The consumer price index jumped 0.5 per cent last month after gaining 0.4 per cent in December, the Labour Department's Bureau of Labor Statistics (BLS) said on Wednesday 12 Feb ’25.In the 12 months through January, the CPI increased 3.0 per cent after advancing 2.9 per cent in December. Economists polled by Reuters had forecast the CPI gaining 0.3 per cent and rising 2.9 per cent year-on-year.

The BLS updated weights and seasonal adjustment factors, the model that the government uses to strip out seasonal fluctuations from the data to reflect price movements in 2024. Some of the rise in the CPI last month probably reflected businesses pushing through price increases at the start of the year. Businesses could also have pre-emptively raised prices in anticipation of higher and broad tariffs on imported goods.

President Donald Trump early this month suspended a highly telegraphed 25 per cent tariff on goods from Canada and Mexico until March. But a 10 per cent additional tariff on Chinese goods went into effect this month. Economists expect that those tariffs, when they are eventually enforced, will lift inflation.

Fed Chair Jerome Powell told lawmakers on Tuesday that "inflation moderated a little further last year," adding that "recent progress has been bumpy."

Inflation remains above the U.S. central bank's 2 per cent target. Chances of a rate cut this year are diminishing amid rising uncertainty over the economic impact of the Trump administration's trade, immigration and fiscal policies.

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...In the 12 months through January, the core CPI rose 3.3 per cent after advancing a 3.2 per cent in December.