According to the data released by the US Bureau of Labor Statistics on Wednesday, the inflation report for January showed that consumer prices rose more than expected. The Consumer Price Index (CPI) rose by 0.5% month-on-month and 3% year-on-year. This report indicates that the Federal Reserve’s efforts to curb inflation continue to face resistance, possibly delaying interest rate cuts.
The data from the Bureau of Labor Statistics shows that the month-on-month and year-on-year increases in CPI for January were higher than the 0.3% and 2.9% predicted by Dow Jones.
Excluding the more volatile food and energy prices, the core CPI for January rose by 0.4% month-on-month and 3.3% year-on-year, exceeding Dow Jones’ forecasts of 0.3% and 3.1% respectively.
In terms of specific categories in the inflation report, costs related to housing continue to put pressure on inflation. Housing costs, which account for a significant proportion in the CPI weight (about one-third), are closely watched. The Bureau of Labor Statistics report showed that housing costs rose by 0.4% month-on-month and 4.4% year-on-year in January.
In addition to housing costs, food prices rose by 0.4% month-on-month and 2.5% year-on-year in January; energy prices rose by 1.1% month-on-month and 1% year-on-year; the price of new cars remained flat month-on-month, staying the same as in December last year, with a year-on-year decrease of 0.3%; prices of used cars and trucks rose by 2.2% month-on-month and 1% year-on-year; transportation service prices increased by 1.8% month-on-month and 8% year-on-year.
The increase in food prices is mainly driven by the rising cost of eggs. The avian flu issue forced farmers to cull millions of chickens, leading to a 15.2% surge in egg prices in January compared to the previous month. The Bureau of Labor Statistics stated that this is the largest increase in egg prices since June 2015. Egg prices have risen by 53% in the past year.
According to data from the Chicago Mercantile Exchange, following the release of the inflation report, the market widely expects the Federal Reserve to keep interest rates unchanged for more months and delay the possibility of the next rate cut until September. Traders also hinted that there is a 70% likelihood of the Fed cutting interest rates only once this year.
According to a report from CNBC, Erik Norland, Chief Economist at the Chicago Mercantile Exchange, stated: “Housing costs remain a major driver of core inflation because higher mortgage rates are pushing more Americans into the rental market, which is approaching historically low vacancy rates.”
“Traders believe, based on today’s data, that the likelihood of further interest rate cuts by the Fed is lower than their previous expectations,” Norland said.
The inflation report led to market volatility, with futures linked to the Dow Jones Industrial Average falling by over 400 points, while bond yields surged significantly.