By CHRISTOPHER RUGABER, Associated Press Economics Writer
WASHINGTON (AP) — U.S. inflation accelerated last month as the cost of groceries, gas, and used cars rose, a trend that will likely underscore the Federal Reserve’s resolve to delay any further interest rate cuts.
The consumer price index increased 3% in January from a year ago, Wednesday’s report from the Labor Department showed, up from 2.9% the previous month. It has increased from a 3 1/2 year low of 2.4% in September.
The figures show that after inflation steadily declined in 2023 and for much of last year, it has remained stubbornly above the Fed’s 2% target for roughly the past six months. Elevated prices created a major political problem for former President Joe Biden. President Donald Trump pledged to reduce prices in last year’s campaign, though most economists worry that his many proposed tariffs could at least temporarily increase costs.
Excluding the volatile food and energy categories, core consumer prices rose 3.3% in January compared with a year ago, up from 3.2% in December. Economists closely watch core prices because they can provide a better read of inflation’s future path.
Inflation also worsened on a monthly basis, with prices jumping 0.5% in January from December, the largest increase since August 2023. Core prices climed 0.4% last month, the most since March 2024.
Inflation often jumps in January as many companies raise their prices at the beginning of the year, though the government’s seasonal adjustment process is supposed to filter out those effects.
Later Wednesday, Federal Reserve Chair Jerome Powell will testify before the House Financial Services Committee, where he will likely be asked about inflation and the Fed’s response to it. The Fed raised its benchmark rate in 2022 and 2023 to a two-decade high of 5.3% to combat inflation. With inflation down significantly from its 9.1% peak in June 2022, it cut its rate to about 4.3% in its final three meetings last year.
Early Wednesday, Trump said on social media that interest rates should be lowered, “something which would go hand in hand with upcoming Tariffs!!!” Yet the tick up in consumer prices makes it less likely the Fed will cut rates anytime soon.
Fed officials are mostly confident that inflation over time will head lower, but they want to see further evidence that it is declining before cutting their key rate any further. The Fed’s rate typically influences other borrowing costs for things like mortgages, auto loans, and credit cards.
Inflation’s recent uptick is a major reason the Federal Reserve has paused its interest rate cuts, after implementing three of them last year. On Tuesday, Fed Chair Jerome Powell said “we do not need to be in a hurry” to implement further reductions in testimony to the Senate Banking Committee.
The Trump administration’s tariff policy could lift prices in the coming months. Trump on Monday imposed 25% taxes on steel and aluminum imports, and has pledged to impose more tariffs. Economists at Goldman Sachs forecast that yearly core inflation would fall almost a full percentage point, to 2.3%, by the end of this year, absent any import duties. But they expect tariffs will raise end-of-year inflation to 2.8%.
On Tuesday, Fed Chair Powell acknowledged that higher tariffs could lift inflation and limit the central bank’s ability to cut rates, calling it “a possible outcome.”
But he emphasized that it would depend on how many imports are hit with tariffs and for how long.
“In some cases it doesn’t reach the consumer much, and in some cases it does,” Powell said. “And it really does depend on facts that we we haven’t seen yet.”
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