US consumer prices increase more than expected in January

U.S. consumer prices increased more than expected in January, reinforcing the Federal Reserve's message that it was in no rush to resume cutting interest rates amid growing uncertainty over the economy.

The consumer price index jumped 0.5% last month after gaining 0.4% in December, the Labor Department's Bureau of Labor Statistics (BLS) said on Wednesday.

In the 12 months through January, the CPI increased 3.0% after advancing 2.9% in December. Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year.

The BLS updated weights and seasonal adjustment factors, the model that the government uses to strip out seasonal fluctuations from the data to reflect price movements in 2024.

Some of the rise in the CPI last month probably reflected businesses pushing through price increases at the start of the year. Businesses could also have pre-emptively raised prices in anticipation of higher and broad tariffs on imported goods.

President Donald Trump early this month suspended a highly telegraphed 25% tariff on goods from Canada and Mexico until March. But a 10% additional tariff on Chinese goods went into effect this month. Economists expect that those tariffs, when they are eventually enforced, will lift inflation.

Fed Chair Jerome Powell told lawmakers on Tuesday that "inflation moderated a little further last year," adding that "recent progress has been bumpy."

Inflation remains above the U.S. central bank's 2% target. Chances of a rate cut this year are diminishing amid rising uncertainty over the economic impact of the Trump administration's trade, immigration and fiscal policies.

Consumers' one-year inflation expectations surged to a 15-month high in early February as households perceived that "it may be too late to avoid the negative impact of tariff policy," a University of Michigan survey of consumers showed last week.

Combined with a stable labor market, Bank of America Securities continues to believe that the Fed policy easing cycle is over. The central bank left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, having reduced it by 100 basis points since September, when it embarked on its policy easing cycle.

The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.

Excluding the volatile food and energy components, the CPI climbed 0.4% in January. The so-called core CPI increased 0.2% in December. The core CPI has tended to print higher in January, which economists said suggested that seasonal effects lingered in the data even after seasonal adjustment.

In the 12 months through January, the core CPI rose 3.3% after advancing a 3.2% in December.