US Inflation Surprise Unsettles Markets

Consumer Price Index (CPI) climbed 3.1% in January, lower than in December, but above forecasts. Markets are now ruling out a March rate cut from the Federal Reserve

Tom Lauricella 13 February, 2024 | 2:46PM
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European equity markets fell in afternoon trading after January inflation data in the US came in higher than expected, shifting expectations for when the Federal Reserve will start to cut interest rates.

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) climbed 3.1% in January from year-ago level – a decrease from December’s 3.4% rate, but well below the January 2023 peak of 6.4%.

However, the January increase was faster than economists had predicted.

Core CPI, which excludes volatile food and energy costs, rose 3.9% in January over the last 12 months after rising 3.9% in December.

The CPI increased 0.3% in January from month-ago levels after rising 0.2% in December. Core CPI increased 0.4% after rising 0.3% in December.

US CPI vs. Core CPI

Data as of January 30, 2024 Source: Bureau of Labor Statistics.

Don't Panic, Inflation is Under Control

Preston Caldwell, chief US economist at Morningstar said:

“There's no reason to panic in response to today's core CPI reading at 0.4% month on month. The upside surprise was driven by shelter, where prices jumped 0.6%, but the leading-edge data continues to show that shelter inflation will eventually fall. Healthcare inflation continued to accelerate in the CPI, but the PCE index uses a different methodology and won't register this increase.

"Altogether, core inflation ex-shelter is at 2.3% annualised for the past three months for the CPI and will likely post around 1.5% for the PCE. It still looks like inflation is coming under control, this month's noisy data on shelter prices aside. Any lingering possibility of a March rate cut is eliminated by today’s news, but a May cut still remains quite likely in our view.”

January CPI Report Key Stats

• CPI increased 0.3% for the month after rising 0.2% in December.
• Core CPI rose 0.4% after growing by 0.3% in December.
• CPI rose 3.1% year over year after increasing by 3.4% the prior month.
• Core CPI increased 3.9% from year-ago levels after increasing 3.9% in December.

Economists had forecast the overall CPI reading to show an increase of 2.9% on an annual basis in January, and for core CPI to rise 3.7%. For the month, CPI had been forecast to rise 0.2% overall and 0.3% excluding food and energy.

Food prices rose 0.4% in January after increasing 0.2% in December. Food-at-home prices increased 0.4% over the month, while food-away-from-home (restaurant) prices increased 0.5%.

Change in Selected CPI Components

Data as of January 30, 2024 Source: Bureau of Labor Statistics.

This article was partially generated by Wordsmith, an automated smart-text platform, using data from the Bureau of Labor Statistics. The article has been reviewed by Morningstar editors.


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Tom Lauricella  is Editor of Morningstar Direct

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