US inflation increased by more than expected last month. Higher egg and energy prices helped to push up the cost of living for Americans. Inflation rose to 3% in January, its highest rate in six months.
This was above the 2.9% expected by economists. The rise comes weeks after the US central bank noted significant uncertainty about where the economy might be headed. It poses a challenge to US President Donald Trump.
He made tackling inflation a centerpiece of his election campaign last year. However, he has put forward policies, such as higher tariffs on imports, that economists say risk pushing up prices. Ryan Sweet, chief US economist at Oxford Economics, said the latest report could put pressure on Trump to reconsider those plans.
Tariffs can still be used as a bargaining tool to get some concessions from other countries, but the political optics of putting even a little upward pressure on consumer prices via tariffs wouldn’t be great for the Trump administration,” he wrote. The uptick in prices last month was wide-ranging. It affected car insurance, airfare, medicine, and other basics.
Grocery prices climbed 0.5% over the month, compared with 0.3% in December. Egg prices surged more than 15% amid shortages caused by an outbreak of avian flu. That marked the biggest monthly increase in nearly a decade, the Labor Department said.
Prices for clothing declined, while rents and other housing-related costs increased 4.4% over the last year. This marked the smallest 12-month increase since January 2022. Core inflation strips out food and energy.
It is seen by analysts as a better measure of underlying trends.
Inflation jumps amid tariff debate
Core inflation was 0.4% over the month, the fastest pace since March.
“This is not a good number,” said Brian Coulton, chief economist at Fitch Ratings. “It illustrates how the Federal Reserve has not completed the job of getting inflation back down just as new inflation risks – from tariff hikes and a squeeze on labor supply growth – start to emerge.”
The Federal Reserve raised interest rates sharply starting in 2022. It hoped higher borrowing costs would cool the economy and ease pressures that were pushing up prices.
The Fed had started cutting rates in September, aiming to avoid any further cooling. However, signs of persistent inflation above the bank’s 2% target in recent months prompted it to keep interest rates unchanged in January. Federal Reserve Chairman Jerome Powell told Congress this week that the bank was in little hurry to cut rates further.
He noted that it remained unclear how Trump’s tariff plans would shape the Fed’s policies. The measures could prompt a slowdown in the economy, alongside a rise in prices. On Wednesday, Trump called on the Fed to lower interest rates to go “hand-in-hand” with tariffs.
But some analysts said after the report that they were no longer expecting any rate cuts this year. Wall Street stocks ended the day mostly lower. Interest rates charged on US government debt climbed as investors bet that borrowing costs would remain higher for longer.
Meanwhile, Randy Kroszner, a former Federal Reserve Board member, questioned whether prices would rise enough for Trump to change course. When President Trump was in office the previous time, he did raise tariffs on steel and aluminum, and there was very little impact on overall prices,” Mr. Kroszner said.
“So it’s unclear whether this would be bigger this time. I mean if it does lead to a global trade war, then they’ll have a bigger impact. But trade is a relatively small part of the US economy.
That’s one of the reasons that President Trump has chosen to focus on this.”
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