U.S. inflation hotter than expected in January

The Consumer Price Index rose more than forecasted in January, highlighting again the bumpy road to disinflation.

Consumer prices were up 3.1% in January from a year earlier, down from 3.4% in December, according to data released by the Bureau of Labor Statistics on Tuesday. On a monthly basis, the index increased by 0.3%, the biggest monthly increase since September.

Core inflation, the Fed’s preferred inflation gauge, changed little at 3.9% annually. The Fed’s target for core inflation remains 2%.

Shelter inflation was the biggest driver of higher overall costs while energy prices declined. Shelter costs rose 0.6% in January, up from 0.4% in December. It was their highest monthly jump since September 2023.

While rent prices are softening, consumers continue to feel the brunt of high prices when they go to the supermarket or the gas pump. 

“Overall, the nation’s economy remains strong, so don’t expect an interest rate cut this half of the year unless consumer prices take a larger, downward trajectory,” CoreLogic Chief Economist Selma Hepp said in a statement. 

When will the Fed start cutting rates?

During the last Federal Open Market Committee meeting, Fed officials reiterated their will to cut rates later this year if inflation stays under control. But, Federal Reserve Chair Jerome Powell wants to see more evidence confirming the economy’s path down to a 2% inflation.  

Some analysts, chilled by Tuesday’s reading, think a May rate cut is now unlikely. According to HousingWire’s lead analyst Logan Mohtashami, there has been progress in inflation, which will yield three rate cuts in 2024.

“For timing, watch the jobless claims data more than inflation,” Mohtashami said. “If jobless claims start to rise every month, it is in plan; for now, jobless claims data is low. Look for May for the first Fed rate cut at the current trend.”

Bright MLS Chief Economist Lisa Sturtevant expects the Fed to cut rates later this year and forecasts mortgage rates to come down. However, she doesn’t anticipate homebuyers to feel that much of a relief as prices remain elevated, including home prices. 

“The best advice for prospective homebuyers is not to wait for mortgage rates to come back down to where they were a couple of years ago, the super-low, pandemic-era rates are not coming back,” Sturtevant said in a statement. “Instead, buyers should take a close look at their finances, set realistic expectations about the home price they can afford, and, in many cases, expect to have to make compromises on the type or location of home that they can make an offer on.”