U.S. Consumer Price Index (January 2025)

Inflationary pressures turn sharply higher in January 

• The Consumer Price Index (CPI) rose 0.5% month-on-month (m/m) in January, an acceleration from December's 0.4% m/m gain. On a twelve-month basis, CPI was up 3.0% (from 2.9% in December). 
  • Energy prices rose 1.1% m/m, led by a further gain in gasoline prices (+1.8% m/m), though energy services (+0.3%m.m) were also higher. Food prices (+0.4% m/m) also came in on the hotter side – posting its largest monthly gain since February 2023. 
• Excluding food and energy, core inflation rose 0.4% m/m, ahead of the consensus and the strongest monthly gain since March 2024. The twelve-month ticked up to 3.3% (from 3.2% in December), while the three-month annualized rose to a nine-month high of 3.8%. 
  • The January release also included revised seasonal adjustment factors, through the impact on the monthly pattern for 2024 was relatively negligible. 
  • Moreover, the outsized gain in core inflation last month suggests that residual seasonality could still be a factor biasing the early-year readings of inflation higher. 
• Price growth on core services was up 0.5% m/m, or double the monthly gain recorded in December. On a year-ago basis, services prices remain at an elevated 4.3%. 
  • Primary shelter costs rose 0.3% m/m, slightly softer than the 0.4% m/m gain averaged over the prior twelve months. On a 12-month basis, shelter costs are up 4.5%.
  • Non-housing services inflation (aka "supercore") accelerated sharply, rising 0.7% m/m or its strongest monthly gain since last January. Price gains were relatively broad based, with vehicle insurance (2.0% m/m), recreational services (+1.4% m/m) and travel costs (including airfares, car rentals and hotels) all recording sizeable gains last month. 
• Core goods prices also came in on the hotter side, rising 0.3% m/m, thanks to a further increase in used vehicle prices (+2.2% m/m), medical goods (+1.2% m/m), and recreational goods (+0.3% m/m). 

Key Implications

• This report is probably the last thing the Federal Reserve and new Administration wanted to see.
• The first CPI reading for 2025 showed core inflation rising at its fastest pace in nearly a year, amid a further uptick in goods prices and ongoing stickiness in services inflation. In the best of case, it's chalked up to residual seasonality (i.e., the inability of seasonal adjustment factors to capture regular calendar moves) and some reversal shows up in the coming months. This effect was apparent in the January/February readings in each of the last two-years. 
• Following this morning's release, futures markets sold-off sharply while the 2-year Treasury yield was jolted higher by approximately 8 basis points to 4.37%. Fed futures have pushed out the timing of next rate cut to December (yesterday, September was fully priced). 
  
   

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