U.S. consumer inflation ticked surprisingly higher in January, data indicated Monday, sending stocks sharply lower as price pressures stayed stubbornly elevated even before the impact of new trade tariffs put in place by President Donald Trump.
The Commerce Department said its headline Consumer Price Index for January was pegged at an annual rate of 3%, accelerating from the 2.9% pace recorded in December and the fastest level since May.
On a monthly basis, price pressures rose 0.5% higher, faster than the December advance of 0.4%, thanks in part to an 1.8% increase in domestic gasoline prices, marking the highest level since August of 2023.
Egg prices, meanwhile, surged 15.2%, notching the biggest month-on-month gain in at least ten years.
So-called core inflation, which strips out volatile components like food and energy, quickened to an annual rate of 3.3%, topping Wall Street's 3.1% forecast and pegged at the highest rate since May.
The monthly core reading of 0.4% was also faster than Wall Street forecasts and matched the final November reading of 0.3%.
"With this very strong CPI print, the Federal Reserve is on hold when it comes to interest rates for at least the remainder of 2025," said Skyler Weinand, chief investment officer at Regan Capital in Dallas.
"The Fed has nothing to do at this point but wait and see, and hope that the economic indicators change to suggest more progress on inflation," he added. "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."
TRUMP: INTEREST RATES SHOULD BE LOWERED, WOULD GO HAND IN HAND WITH UPCOMING TARIFFS pic.twitter.com/NausYusyDh
— Wall St Engine (@wallstengine) February 12, 2025
U.S. stocks extended declines following the data release, with the S&P 500 falling 60 points, or 1%, in early trading and the Nasdaq falling 226 points. The Dow was last marked 396 points lower.
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Benchmark 2-year Treasury note yields rose 7 basis points to 4.367% while 10-year notes jumped 8 basis points to 4.629%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.5% higher at 108.441
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The CME Group's FedWatch, meanwhile, has wiped out bets on any Fed rate cuts for this year, pegging the chances of a quarter point reduction no higher than 40%.
“The economy is strong, growing 2.5% last year. The labor market is also very solid. Unemployment at 4% is quite a low level. Inflation last year was 2.6% for the year,” Fed Chair Jerome Powell told lawmakers on Capitol Hill Tuesday during testimony to the Senate Banking Committee.
“So we’re in a pretty good place with this economy. We want to make more progress on inflation, and we think our policy rate is in a good place. We don’t see any reason to be in a hurry to reduce it further,” he added.
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