Inflation Rises Higher Than Expected in January

Inflation is staying sticky, with new data finding that annual inflation rose more than expected during the first month of the year.

The consumer price index (CPI) for all items rose 3% for the 12 months ending in January, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported Feb. 12. That’s up from the 2.9% year-over-year increase notched in December and also one of the hottest readings in months.

On a monthly basis, the CPI increased 0.5%, after rising 0.4% in December.

Core CPI accelerated 0.4% for the month—after increasing 0.2% in December—and 3.3% annually. The annual rate is also up from the month prior.

The index for shelter rose 0.4% in January, accounting for nearly 30% of the monthly all-items increase, the BLS reported. The energy index increased 1.1% over the month, as the gasoline index rose 1.8%. The index for food also increased in January, rising 0.4% as the index for food at home rose 0.5% and the index for food away from home increased 0.2%.

“Although inflation from shelter costs have eased considerably from the highs we saw in 2022-2023, over the last few months, we’ve seen gas, food, and vehicle prices have been trending upward,” explained Sydney Ross, an economic researcher at SHRM.

The CPI report will likely reinforce the Federal Reserve’s cautious approach concerning the pace and magnitude of interest rate cuts going forward, Ross said. “Broadly speaking, this would mean consumers and employers will continue facing higher borrowing costs for longer,” she explained.

Federal Reserve Chair Jerome Powell this week said that given the performance of the overall economy and strength of the labor market, the Fed is in no rush to adjust the policy rate, Ross explained. “Uncertainty over the future path of inflation, as well as the potential implementation of new fiscal, immigration, and trade policies, are some of the key reasons the policymakers decided to maintain the federal funds rate as is during their January meeting,” she said.

A recent SHRM pulse survey of 1,071 U.S.-based workers found that nearly half of U.S. workers (43%) said inflation had an extreme or significant impact on their personal financial situation. That SHRM data also found that 36% of U.S. workers were confident their employer would offer fair cost-of-living adjustments in 2025. Of those U.S. workers, only 10% were “very confident.” By contrast, 34% were not confident they would be offered fair cost-of-living adjustments in 2025.

Mixed Data on Real Earnings

Real average hourly earnings for all employees were unchanged from December to January, seasonally adjusted, the BLS reported separately. This result stems from an increase of 0.5% in average hourly earnings combined with an increase of 0.5% in the CPI for All Urban Consumers.

Real average weekly earnings decreased 0.3% over the month due to the change in real average hourly earnings combined with a decrease of 0.3% in the average workweek. 

Real average hourly earnings increased 1%, seasonally adjusted, from January 2024 to January 2025, the BLS said. The change in real average hourly earnings combined with a 0.3% decrease in the average workweek resulted in a 0.7% increase in real average weekly earnings over this period.