January 2025 CPI Report
Inflation unexpectedly picked up in January, complicating the Federal Reserve’s efforts to bring price increases under control. The Consumer Price Index (CPI) rose 3.0 percent year-over-year, up from 2.9 percent in December, while monthly inflation surged 0.5 percent—the largest one-month gain since August 2023.
Core CPI, which excludes volatile food and energy prices, also moved in the wrong direction, rising 3.3 percent year-over-year and 0.4 percent on a monthly basis. The increase in core prices marks the highest monthly gain since April 2023 and suggests that underlying inflationary pressures remain persistent.
Food and energy costs were significant contributors to the acceleration in inflation. Grocery prices increased 0.5 percent from the previous month and 1.9 percent year-over-year, with egg prices skyrocketing 53 percent due to an avian flu outbreak. Gasoline prices also climbed 1.8 percent in January, offsetting declines in categories such as apparel and furniture.
Economists had hoped that easing housing inflation would support the broader disinflation trend. However, shelter costs increased 0.4 percent month-over-month and 4.4 percent year-over-year, signaling that progress in this crucial category has slowed. Since shelter accounts for a significant portion of the CPI, its continued strength poses challenges for inflation moving forward.
The latest data complicates the job for the Federal Reserve. The central bank cut rates by a full percentage point in late 2024, but with inflation proving stickier than anticipated, Fed officials are signaling caution about further reductions.
The Federal Reserve has maintained that it wants greater confidence that inflation is on track toward its 2 percent target before easing policy further. Following the release of the CPI data, financial markets adjusted their expectations, pushing back the projected timeline for the next Fed rate cut from September to December.
Fed Chair Jerome Powell reiterated in congressional testimony that the central bank remains committed to ensuring inflation does not become entrenched at higher levels, stating that while progress has been made, “we’re close, but not there on inflation.”
With price pressures persisting and economic uncertainty rising, the Fed’s balancing act between controlling inflation and supporting growth is likely to remain a dominant theme in 2025.
