The January Consumer Price Index came in higher than expected with inflation hot to start 2025.

What Happened: CPI rose 3% on a year-over-year basis in January, missing expectations for 2.9%. CPI was up 0.5% on an adjusted basis from December to January, up from 0.4% in the previous report.

Rising inflation figures have now pushed back expectations for a Federal Reserve rate cut to December 2025.

The 0.5% monthly CPI figure was the largest increase since August 2023 and it adds to consumers’ worries for 2025 on the heels of potential tariffs that could increase prices on everyday goods and services.

Within the CPI report, housing data showed rising costs. Rent of primary residence rose 0.3% in January and rose 4.2% on a year-over-year basis.

Owners' equivalent of residences was also up 0.3% in January and is now up 4.6% on a year-over-year basis.

While the housing figures rose in January, rent price inflation is cooling. Comerica Bank’s chief economist Bill Adams said the cooling rent price inflation was the "one piece of good news for consumers" in the CPI report.

"The year-over-year increase of rent of primary residence was the coolest since February 2022," Adams said, adding that the report showed rent increases could show relief in the rest of 2025.

Core CPI, which excludes food and energy rose 0.4% in January and is up 3.3% on a year-over-year basis, rising from 3.2% year-over-year in the last report.

Economist Joseph Brusuelas highlighted the rising rents and housing costs in his breakdown of the CPI data.

"Take a look at rents. They are up 4.6% from one year ago. Housing costs up 3.8%, rent of primary residence 4.2% and shelter 4.4%. Even lodging away from home is up 3%," Brusuelas tweeted.

Read Also: Inflation Spike Sparks Dollar Rally: Yields Jump, Bitcoin And Stocks Slide As Interest Rate Cut Doubts Grow

Why It's Important: Ahead of the CPI report, President Donald Trump called for lower interest rates. With rising inflation and a worse than expected report, the Federal Reserve could delay further rate cuts.

On Tuesday, Federal Reserve Chair Jerome Powell told the Senate Banking Committee the Fed was in no hurry to adjust interest rates. Powell cited continued inflation as the Fed works towards a 2% inflation goal.

"Inflation remains somewhat elevated," Powell said.

While the Fed has cut rates in recent months, Powell said "we do not need to be in a hurry to adjust our policy stance."

Mortgage rates do not always go down when the Federal Reserve cuts interest rates, but the two items often trade in pair. With concerns that the Fed will not cut rates again until late 2025, mortgage rates could face pressure and consumers looking to buy homes could be forced to wait for lower rates and rent or pay the higher price.

Mortgage rates sat at 6.9% for a 30-year fixed mortgage at the time of writing.

Price Action: The SPDR S&P 500 ETF Trust ( SPY ) , which tracks the S&P 500 Index, is down 0.6% to $601.51 on Wednesday.

The Vanguard Real Estate ETF is down 1.5% to $90.65 on Wednesday.

The iShares U.S. Home Construction ETF ( ITB ) is down 3.1% to $100.49 on Wednesday.

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