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Inflation eased again in January – but there's a cautionary sign
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Date:2025-04-16 15:54:01
Inflation cooled in January for the seventh month in a row.
But there's a cautionary sign: While the 12-month price increase was slightly lower, prices surged between December and January, suggesting inflation is still far from tamed.
Consumer prices last month were 6.4% higher than a year ago, according to a report from the Labor Department Tuesday. That's the lowest annual inflation reading since October 2021.
However, prices rose 0.5 between December and January — the fastest one-month gain since October of last year.
The recent spike in prices suggests that inflation may have more staying power than financial markets have anticipated.
"There's been an expectation that it will go away quickly and painlessly, and I don't think that's at all guaranteed," Federal Reserve chairman Jerome Powell said last week. "The base case for me is that it will take some time and we'll have to do more rate increases and then have to look around and see if we've done enough."
The Federal Reserve has already raised interest rates by 4.5 percentage points since last March in an effort to curb inflation. Fed policymakers have hinted at two more rate hikes, totaling 0.5 percentage points, in the coming months.
"We expect 2023 to be a year of significant declines in inflation and it's actually our job to make sure that that's the case," Powell said, in an appearance before the Economic Club of Washington. But he cautioned it would likely be 2024 before inflation returns to the Fed's target rate of 2%.
Gas prices are rising - and used cars could be next
The rise in the consumer price index between December and January was fueled by higher costs for shelter, food, and gasoline.
Excluding volatile food and energy prices, "core inflation" was 0.4% for the month — unchanged from December.
Gas prices have dropped during the first two weeks of February, but AAA warns that drivers can't count on falling prices at the pump to keep inflation in check.
"We are entering the higher-priced spring and summer driving season, and so drivers should brace for that," said Devin Gladden of AAA. "It will likely be a volatile year given how much uncertainty remains around the economy."
Used car prices have also acted as a brake on inflation, falling 8.8% last year and another 1.9% in January. But signals from the wholesale market suggest used car prices could jump again in the coming months.
The Fed is also keeping a close eye on the price of services, such as haircuts and restaurant meals. Those prices are largely driven by labor costs, and are therefore less likely to come down than goods prices.
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