US inflation much too high
US consumer prices rose sharply in January, by 0.5% month-on-month.
Commerzbank Economic Research
02/12/2025
The data
US consumer prices rose by 0.5% in January from the previous month. The year-on-year rate rose from 2.9% to 3.0%. The more important core rate, which excludes the volatile prices of energy and food, was 0.4% month-on-month. The year-on-year core rate here increased from 3.2% to 3.3%. All data exceeded consensus and our expectations, which were 0.3% in month-on-month terms for both the headline and the core rate.
Interpretation
US consumer prices rose more sharply again in January. This also applies to the important core rate, which gives a better signal of the underlying trend by excluding the volatile prices for energy and food. The month-on-month core rate of 0.4% is the highest since April 2023. Thus, the momentum in the core rate has increased again as indicated by the annualized core rate over the last three months. The slight slowdown in the momentum observed in December was therefore not confirmed.
Moreover, price pressure was relatively widespread within the core categories. Core services even rose by 0.5% from December, and the price increase of 0.3% for core goods is also relatively strong. This is because goods prices tend to be about flat in the long term.
Last month's price surge could be partly due to the fact that many companies tend to raise their prices in January, especially when faced with significantly rising costs. Although the data should be adjusted for such seasonal influences, this phenomenon did not occur to this extent during the period of price stability before the pandemic, so it may not be fully accounted for. Thus, inflation also surprised on the upside in January 2024.
But even if the January figures are somewhat overstated, the impression remains that US inflation is more stubborn than widely assumed. And that's even before the inflation-boosting effects of Trump's tariff and deportation plans are being felt. We therefore see the report as confirmation of our above-consensus inflation forecasts of 2.8% for 2025 and 3.2% for 2026.
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