By Lucia Mutikani
WASHINGTON, Feb 13 (Reuters) – U.S. consumer prices increased less than expected in January amid cheaper gasoline and a moderation in rental inflation, but households faced higher costs elsewhere, suggesting little urgency for the Federal Reserve to resume cutting interest rates before summer.
The Consumer Price Index report from the Labor Department on Friday showed underlying inflation pressures warmed up last month, likely as businesses pushed through start-of-the-year price increases for goods and services, including personal care, recreation as well as airline fares and hospital services.
Still, the slowdown in overall inflation will be welcomed by President Donald Trump, whose approval ratings on the economy have taken a hit amid anxiety over jobs and affordability. The report followed on the heels of news this week of an acceleration in job growth in January and a drop in the unemployment rate to 4.3% from 4.4% in December.
“Looking at the breakdown, this was a noisy report,” said James McCann, senior economist, investment strategy at Edward Jones. “Overall, the data suggest that price pressures remain a little too hot for comfort for the time being, but the direction of travel for inflation continues to look to be lower, even if this has proved a bumpy and slow process. For the Fed, this probably doesn’t change much in the near term.”
The Consumer Price Index rose 0.2% last month after an unrevised 0.3% gain in December, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the CPI increasing 0.3%. With January’s CPI report, the BLS published recalculated seasonal adjustment factors to reflect 2025 price movements.
The report was slightly delayed by last week’s three-day shutdown of the federal government. A longer shutdown last year prevented the collection of prices for October, causing volatility in the CPI data.
The cost of shelter, which includes rents as well as motel and hotel stays, increased 0.2% after surging 0.4% in December. Food prices rose 0.2% after accelerating 0.7% in the prior month. Grocery store prices climbed 0.2% as more expensive cereal and baked goods were partially offset by a 0.4% easing in the cost of beef and veal.
Eggs and coffee were also relatively cheaper last month as were fresh fruits and vegetables. The Trump administration has rolled back and cut tariffs on some imported food. Still, food prices increased 2.9% from a year ago. Consumers also got more relief at the pump, with gasoline prices dropping 3.2% in January from the prior month.
Though electricity prices dipped 0.1%, they surged 6.3% year-on-year, reflecting demand from data centers to power artificial intelligence. In the 12 months through January, the CPI increased 2.4%. The slowdown in the year-on-year inflation rate from 2.7% in December mostly reflected last year’s higher readings dropping out of the calculation.
U.S. stocks opened lower. The dollar was little changed against a basket of currencies. U.S. Treasury yields fell.
CORE INFLATION WAS WARMER IN JANUARY
The U.S. central bank tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target. Both measures are running well above target. The government reported this week that job growth accelerated in January and the unemployment rate fell to 4.3% from 4.4% in December.
The Fed last month left its benchmark overnight interest rate in the 3.50%-3.75% range.
Excluding the volatile food and energy components, the CPI increased 0.3% after rising by an unrevised 0.2% in December.
Core CPI numbers have overshot expectations every January, with economists saying the seasonal adjustment factors, the model used by the BLS to strip out seasonal fluctuations from the data, were not fully accounting for the one-off turn-of-the-year price increases.
The cost of personal care jumped 1.2%, while recreation increased 0.5% and communication rose 0.5%. Airline fares soared 6.5%. Owners’ equivalent rent increased 0.2%. Healthcare costs increased 0.3%, with prices for hospital services shooting up 0.9% and physicians’ services rising 0.3%.
But prescription medication prices were unchanged. Apparel prices increased 0.3%, a sign of continued pass-through from tariffs. In the 12 months through January, the so-called core CPI increased 2.5% after advancing 2.6% in December. That also reflected last year’s higher readings dropping out of the calculation.
Economists expect inflation to pick up for a while this year, citing the pass-through from import duties as well as the dollar’s depreciation last year against the currencies of the United States’ main trade partners. The trade-weighted U.S. dollar fell about 7.4% last year.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )
