Inflation in the U.S. Rose More Than Expected, Companies Raise Prices in Fear of Tariffs

Consumer prices in the U.S. rose more than expected in January of this year, indicating that the U.S. Federal Reserve will not rush to cut interest rates. According to Reuters, the consumer price index jumped by 0.5 percent last month after a 0.4 percent increase in December, the U.S. Bureau of Labor Statistics reported on Wednesday. Compared to January 2024, inflation rose by 3 percent, while in December, compared to December 2023, inflation was 2.9 percent. In comparison, economists surveyed by Reuters had predicted that inflation would rise by 0.3 percent and 2.9 percent year-on-year.

Core inflation, which excludes food and energy prices, rose by 0.4 percent in January, following a 0.2 percent increase in December. Year-on-year, core inflation rose by 3.3 percent, after recording a 3.2 percent increase in December year-on-year.

Chances for Reducing Inflation and Interest Rates Are Diminishing

Inflation was primarily influenced by the preemptive price increases of some American companies fearing the introduction of tariffs on imported goods. Specifically, President Donald Trump suspended 25 percent tariffs on goods from Canada and Mexico until March, but this month an additional 10 percent tariff on Chinese goods came into effect. Economists expect that Trump’s tariffs, when finally implemented, will further increase inflation.

Fed Chairman Jerome Powell stated on Tuesday that inflation last year was moderate. However, it remains above the U.S. central bank’s target of 2 percent. Due to increasing uncertainty regarding the economic impact of the trade, immigration, and fiscal policies of the Trump administration, the chances for reducing the inflation rate this year are diminishing.

Nevertheless, consumer expectations regarding inflation have risen to the highest level in the past 15 months, as shown by last week’s survey results from the University of Michigan, as people realized that ‘it may be too late to avoid the negative impact of tariff policy.’

Additionally, given the current stability of the labor market in the U.S., Bank of America Securities believes that the Fed’s cycle of monetary policy easing, or reducing borrowing costs, has ended. In January, the U.S. central bank kept its benchmark interest rate unchanged in the range of 4.25 to 4.5 percent, after reducing it by 100 basis points since September when it began its policy easing cycle. To tame inflation, the benchmark rate was increased by 5.25 percentage points in 2022 and 2023.