US inflation accelerated last month, with the cost of groceries, gasoline, and rents increasing. The consumer price index rose 3% in January compared to a year ago, up from 2.9% the previous month. This is the highest level since September and exceeds the Federal Reserve’s 2% target.
The new data suggests inflation has remained stubbornly above the Fed’s target for six months after falling steadily for over a year and a half. Elevated prices are now a major political hurdle, as former President Joe Biden struggled with this issue during his presidency. Former President Donald Trump had pledged to reduce prices on “Day 1” if elected.
The unexpected boost in inflation could dampen business enthusiasm that arose after Trump’s election promises to reduce regulation and cut taxes. The Dow fell 400 points mid-day trading Wednesday, while bond yields rose, indicating traders expect inflation and interest rates to remain high.
Economists say the increase is not just a one-month blip, but rather a sign of consumers continuing to spend at a robust pace. This gives companies less reason to hold down prices. The decline in inflation last year was largely due to supply-chain improvements, which have now played out.
Grocery prices jumped 0.5% in January, mainly driven by a surge in egg prices. Egg producers had to cull about 40 million birds due to an avian flu epidemic, leading to higher costs. Car insurance and hotel prices also rose, while the cost of gasoline increased 1.8%.
Some businesses are preparing for price increases due to Trump’s tariffs, which could push up the cost of cars, appliances, and industrial machinery. Phil Hannon, vice president of operations at Abt, expects to raise prices by 3-15% as soon as March.
Fed Chair Jerome Powell said the Fed has made progress on inflation but still needs to keep rates “restrictive for now.” The Fed’s rate is currently 4.3%, influencing borrowing costs for everything from mortgages to credit cards.
Source: https://apnews.com/article/inflation-economy-federal-reserve-48e77a855078b37bf3ccd58c9db94c82