Last month, the US saw a higher-than-expected increase in inflation as rising gasoline and egg costs contributed to an increase in the cost of living for Americans.
In January, inflation in USA exceeded the 2.9% forecasted by economists and reached 3%, the highest level in six months.
The increase follows weeks after the US central bank said there was substantial uncertainty about the future direction of the economy and decided to keep interest rates.
It presents a dilemma to US President Donald Trump, who proclaimed combating inflation a key component of his campaign last year but has proposed measures that analysts warn could drive up prices, like increased import tariffs.
The new research may force Trump to reevaluate those policies, which would increase tariffs on goods entering the nation, according to Ryan Sweet, chief US economist at Oxford Economics.
“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 stated.
A wide range of prices increased last month, including those for medicine, flights, auto insurance, and other necessities.
Due to shortages brought on by the avian flu outbreak, grocery prices increased by 0.5% throughout the month as opposed to 0.3% in December. Egg prices also increased by more than 15%.
According to the Labor Department, that was the largest monthly increase in almost ten years.
Rents and other housing-related expenses rose 4.4% over the past year, the smallest 12-month gain since January 2022, while apparel prices fell. Analysts view core inflation, which excludes food and energy, as a stronger indicator of underlying trends, and it was 0.4% for the month, the fastest since March.
“This is not a good number,” Fitch Ratings head economist Brian Coulton stated.
“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.”
Beginning in 2022, the Federal Reserve hiked interest rates significantly in the hopes that higher borrowing costs would calm the economy and reduce price-push factors.
In September, it began reducing rates, stating that it wished to prevent additional cooling.
However, the bank decided to hold interest rates steady in January due to indications of ongoing inflation over its 2% objective in previous months.
