Consumer Prices Rise 3.1 Percent in January

Alexandra Canal |

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US consumer prices rose more than expected in January, according to the latest data from the Bureau of Labor Statistics. The Consumer Price Index rose 0.3% over the previous month and 3.1% over the prior year in January. Both measures were higher compared to economist forecasts of a 0.2% month-over-month increase and a 2.9% annual increase, according to data from Bloomberg. On a "core" basis, which strips out the more volatile costs of food and gas, prices in January climbed 0.4% over the prior month and 3.9% over last year. Investors were closely watching the print for clues about when the Federal Reserve will begin cutting interest rates. After the data's release, markets priced in a 94% chance the central bank will hold rates steady at its meeting next month, up from 84% on Monday. Stocks moved lower in early trading following the report while the yield on the 10-year Treasury note ticked up about 10 basis points to trade near 4.3%. "It is too early to declare victory over inflation," wrote Torsten Slok. "Maybe the last mile was indeed more difficult." Notable call-outs from the inflation print include the shelter index, which rose 6% on an unadjusted, annual basis and 0.6% month over month. This was a particularly high rate after the index rose 0.4% on a monthly basis in December. Sticky shelter inflation is largely to blame for higher core inflation readings, according to economists. The index for rent and owners' equivalent rent rose 0.4% and 0.6% on a monthly basis, respectively. Owners' equivalent rent is the hypothetical rent a homeowner would pay for the same property. The food index increased 2.6% in January over the last year, with food prices rising 0.4% from December to January. The index for food at home increased 0.4% over the month after rising just 0.1% in December. Energy prices, meanwhile, continued to fall, declining 4.6% annually and 0.9% month over month. Annual inflation has remained above the Federal Reserve's 2% target. But the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, has come in below that rate on a six-month annualized basis, boosting hopes the central bank could begin to cut interest rates. Tuesday's report, however, will temper those expectations. "This was a bad report for those betting the Fed is going to start decreasing interest rates soon," Eugenio Alemán, chief economist at Raymond James, wrote in reaction to the hotter-than-expected print. Citi, meanwhile, warned that the hot inflation print will likely have an impact on the recent stock market rally. "Strong core CPI is not a game changer but likely to drive a short-term pullback," Stuart Kaiser, head of Citi's US equity trading strategy, wrote. "With strong growth data in the background, it will be hard for the Fed to cut as early as some investors hoped despite very restrictive policy."