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Consumer prices increase 0.5% in January

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Shelter, food, gasoline lead broad rise in prices

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Consumer price index rises 3.0% year-on-year

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Core CPI gains 0.4%; advances 3.3% year-on-year

By Lucia Mutikani

WASHINGTON, Feb 12 (Reuters) - U.S. consumer prices

increased by the most in nearly 1-1/2 years in January, with

Americans facing higher costs for a range of goods and services,

reinforcing the Federal Reserve's message that it was in no rush

to resume cutting interest rates amid growing uncertainty over

the economy.

The hotter-than-expected inflation reported by the Labor

Department on Wednesday was likely partly due to businesses

raising prices at the start of the year, evident in a record

surge in the cost of prescription medication and an increase in

motor vehicle insurance.

The report followed a pattern of CPI numbers overshooting

expectations every January, which some economists said suggested

that the seasonal adjustment factors, the model used by the

government to strip out seasonal fluctuations from the data,

were not fully accounting for the one-off turn-of-year price

hikes.

Nonetheless, they said the so-called residual seasonality

was not responsible for all of the broad rise in prices, which

offered a cautionary note to President Donald Trump's push for

tariffs on imported goods that have been panned by economists as

inflationary.

Trump was elected on promises to lower prices for

inflation-weary consumers. High inflation could imperil the

Trump administration's agenda, including tax cuts, which could

overstimulate a healthy economy, and mass deportations of

undocumented immigrants that are seen causing labor shortages

and raising costs such as wages for businesses.

"The moderation we saw in consumer inflation last summer is

no longer visible now," said Scott Anderson, chief U.S.

economist at BMO Capital Markets. "The problem for the Fed is

this isn't just a one-month event, but looks like a real

multi-month firming of inflation pressures."

The consumer price index jumped 0.5% last month, the biggest

gain since August 2023, after rising 0.4% in December, the

Labor Department's Bureau of Labor Statistics (BLS) said.

Shelter, which includes hotels and motel rooms, increased

0.4% and accounted for nearly 30% of the rise in the CPI. That

followed two straight monthly gains of 0.3%.

Food prices rose 0.4% after increasing 0.3% in December.

Grocery store prices surged 0.5%, with the cost of eggs soaring

15.2%, the largest increase since June 2015. That accounted for

about two-thirds of the rise in prices at the supermarket.

An avian flu outbreak has caused a shortage of eggs, driving

up prices. Egg prices, which fueled much of the voter discontent

with inflation, increased 53.0% year-on-year in January.

Prices also rose for meats, poultry and fish as well as for

nonalcoholic beverages and dairy products. Fruits and vegetable

prices fell by the most in nearly two years. Gasoline prices

increased 1.8% while natural gas cost 1.8% more, but electricity

prices were unchanged.

In the 12 months through January, the CPI increased 3.0%.

That was the biggest gain since June 2024 and followed a 2.9%

advance in December. Economists polled by Reuters had forecast

the CPI gaining 0.3% and rising 2.9% year-on-year.

The BLS updated CPI weights and seasonal adjustment factors

to reflect price movements in 2024. Economists had expected the

updated seasonal factors to temper the rise in the CPI.

Businesses could also have preemptively raised prices in

anticipation of higher and broad tariffs on imported goods.

Trump early this month suspended a highly telegraphed 25%

tariff on goods from Canada and Mexico until March. But a 10%

additional tariff on Chinese goods went into effect this month.

Economists expect that those tariffs, when they are eventually

enforced, will lift inflation.

Fed Chair Jerome Powell appearing before lawmakers for a

second day on Wednesday said the CPI report highlighted that the

central bank was "not quite there yet" in its quest to bring

inflation back to its 2% target.

Stocks on Wall Street slumped. The dollar eased versus a

basket of currencies. U.S. Treasury yields rose.

RATE CUT HOPES DIMINISHING

Chances of a rate cut this year are diminishing. Consumers'

one-year inflation expectations surged to a 15-month high in

early February as households perceived that "it may be too late

to avoid the negative impact of tariff policy," a University of

Michigan survey of consumers showed last week.

Higher inflation, together with a stable labor market, has

some economists believing the Fed's easing cycle is over.

The Fed left its benchmark overnight interest rate unchanged

in the 4.25%-4.50% range in January, having reduced it by 100

basis points since September, when it embarked on its policy

easing cycle. The policy rate was hiked by 5.25 percentage

points in 2022 and 2023 to tame inflation.

Excluding the volatile food and energy components, the CPI

climbed 0.4% in January. The so-called core CPI increased 0.2%

in December. Residual seasonality has tended to be more

pronounced in the core CPI.

Shelter costs increased 0.4%, boosted by a 1.7% rebound in

the prices of hotels and motel rooms. But owners' equivalent

rent moderated further, rising 0.3%. Prescription medication

prices jumped by a record 2.5% and hospital services increased

0.9%. The cost of motor vehicle insurance soared 2.0%.

Airline fares rose 1.2%, slowing after December's 3.0%

surge. There were also increases in the prices of recreation,

used cars and trucks, communication and education. Apparel

prices fell 1.4%. Overall, core goods prices rose 0.3%.

In the 12 months through January, the core CPI rose 3.3%

after advancing 3.2% in December.

Based on the CPI data, economists estimated that the core

personal consumption expenditures price index rose 0.4% in

January after gaining 0.2% in December. It is one of the

measures tracked by the Fed for monetary policy. Core inflation

was forecast increasing 2.7% after rising 2.8% in December.

January's producer price data on Thursday could impact these

estimates.

"The risk is tilted toward less easing if the

administration's policy mix fuels inflation and inflation

expectations," said Gregory Daco, chief economist at

EY-Parthenon.