Prices accelerated in January

February 12, 2025

The consumer price index (CPI) rose 0.5% in January, an unwelcome acceleration from December. The CPI rose 3% from a year ago, up from 2.9% in December. Year-over-year measures of inflation have risen for four months in a row and are now at the fastest pace in more than six months.  Core prices, which exclude volatile food and energy prices, rose 0.4% in January; the 12-month change registered 3.3%, mired within a range of 3.2% to 3.3%, where it has been for eight months. The hotter inflation figures affirm our forecast that the Federal Reserve will remain on pause through this year.

In energy prices, the biggest gainer was fuel oil, with a 6.2% increase, however it was still lower than a year ago. Prices at the gas pump climbed 1.8% during January after a 4% jump in December, which was prompted by a record travel season. 

Food prices increased 0.4% during January, the largest increase in two years. The year-over-year increase remained at 2.5%. Prices at grocery stores carried much of the increase, rising 0.5% and marking the largest bump in more than three years. Prices on food away from home increased 0.2%, a slight moderation from December. 

Grocery store price gains were fairly broad-based. The price of eggs soared 15.2% in January, the largest gain since the 2015 avian flu outbreak. A record number of chickens has been culled as a result, which has had an outsized impact on egg prices. Food products with lower prices during January included pork, cereals and fresh vegetables. 

The core CPI rose 0.4% in January, a notable acceleration. The 12-month change edged up to 3.3%, still within a range of 3.2% to 3,3% since mid-2024. New vehicle prices were flat following strong gains over the prior two months, while used vehicle prices continued to outpace new vehicle prices, jumping 2.2%.  Private data on used-car auction prices suggest a slowing may be in the offing.  Replacement demand following hurricanes and low inventories continues to support prices for now.

Shelter costs, which make up about a third of the CPI, are keeping inflation elevated.  Shelter costs rose 0.4% in January, a tenth of a percentage point higher than in December. Hotel room rates moved sharply higher, likely related to the fires in Southern California.

Core services inflation, excluding shelter costs, jumped 0.8% in January, the largest gain in a year, and well above the average over the prior six months of just 0.3%. The index rose 4.1% compared to a year ago. The year-over-year gains remain more than double the pre-pandemic pace. Vehicle insurance jumped 2% in January and has soared at double-digit rates since September 2022. Increases in homeowners’ insurance costs are well off their peak but have moved higher on recent disasters.

Indexes of goods (commodities) prices, excluding food and energy, typically decline slightly over time. However, these prices have edged higher over the past six months, contributing to the firmness in core prices.  The good news is that some big-ticket items, from household furnishings to appliances, fell in price.  Some of that reflects a strong dollar. Spending on furniture and appliances has firmed during the last few months after storms and a slight rebound in home sales. The retail sales data will tell us more on Friday. 

The battle against inflation is not yet won; the ground is still fertile for a resurgence in prices.