January CPI Rises 3% Year-on-Year, Exceeding Expectations
Housing, Food, and Energy Prices All See Increases
Fed Likely to Delay Resumption of Rate Cuts
Wall Street Analysts: "The Rate Cut Cycle Is Over"
The U.S. Consumer Price Index (CPI) growth rate for last month has returned to the 3% range, surpassing market expectations. This has increased the likelihood that the Federal Reserve (Fed), which has paused interest rate cuts, will delay the resumption of monetary easing. Following the surprise rebound in inflation, the yield on 10-year U.S. Treasury bonds surged by more than 10 basis points (1bp=0.01 percentage point), and the New York stock market is broadly showing weakness.
On February 12 (local time), the U.S. Department of Labor announced that the CPI for January 2025 rose by 3% year-on-year. This is an increase of 0.1 percentage point from December 2024 (2.9%), exceeding the market forecast of 2.9%.
On a month-on-month basis, the January CPI rose by 0.5%, outpacing both the previous month's figure (0.4%) and the market expectation (0.3%).
Rises in housing, food, and energy prices all contributed to the increase in CPI. By category, housing costs rose 0.4% from the previous month, accounting for 30% of the overall increase and continuing to hinder a decline in inflation. Energy prices climbed 1.1% month-on-month, with gasoline jumping 1.8%. The cost of purchasing food rose 0.4%, and the cost of dining out increased by 0.2%, resulting in an overall food price rise of 0.4%. Due to avian influenza, egg prices soared by 15.2%, accounting for two-thirds of the total increase in food purchase costs. This jump in egg prices is the highest since June 2015.
The core CPI, which excludes the volatile energy and food sectors, rose 0.4% from the previous month and surged 3.3% year-on-year. Compared to December 2024 (0.2% and 3.2% respectively), the increases were greater, also surpassing market expectations (0.3% and 2.9% respectively). The core CPI is closely watched by the Fed as it reflects the underlying trend in prices.
With the labor market remaining robust and inflation rebounding, it is expected that the Fed will further delay the resumption of interest rate cuts.
Fed Chair Jerome Powell also appeared before the U.S. Congress the previous day, stating, "We are in a very good position in the economy and want to see more progress on inflation," and added, "There is no reason to rush additional rate cuts."
Previously, the Fed began a monetary easing cycle in September 2024, lowering the benchmark rate from a peak of 5.25-5.5% with three consecutive cuts to 4.25-4.5%, before holding rates steady for the first time last month.
The market is also rapidly lowering its expectations for rate cuts. According to CME FedWatch, the federal funds futures market is currently pricing in a 65.2% probability that the Fed will keep rates unchanged throughout the first half of the year. This is a sharp increase from 34.1% a week ago and 50.3% the previous day. The probability of rates being held steady for the entire year also rose from 10.4% the previous day to 28.6%.
Josh Jamner, investment strategy analyst at ClearBridge Investments, commented, "The Fed said, 'Let's wait and see,' but this hot January CPI report means they will have to wait even longer," adding, "This report nailed the coffin shut on the rate cut cycle. The rate cut cycle is over."
Following the release of the January CPI report, Treasury yields have surged. The yield on the benchmark 10-year U.S. Treasury note jumped 12 basis points from the previous session to 4.65%, while the yield on the policy-sensitive 2-year Treasury note rose 7 basis points to 4.36%. The New York stock market is weak. As of 11:02 a.m. in New York, the Dow Jones Industrial Average is down 0.6% from the previous day, while the S&P 500 and Nasdaq indices are down 0.48% and 0.26%, respectively.
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