After a Hot January Inflation Report, Will the Fed Wait Longer to Cut Rates? Stubbornly high shelter costs lift CPI, even as other parts of the outlook improve.


Americans plagued by surging prices over the past 22 months continue to face strain as the cost of meeting everyday necessities remains elevated despite signs of slowing inflation.

The Labor Department said Tuesday that the Consumer Price Index (CPI), a broad measure of the price for everyday goods, including groceries, gasoline, and rent, rose 0.3% in January from the previous month. Consumer prices were 3.1% higher than a year earlier.

While that measure is under the 3.4% inflation reading in December, it remains above the Federal Reserve’s 2% target.

Declining prices for energy and many goods are helping cool down inflation, but basics such as housing, food, and auto insurance continued to climb.

Overall, consumer inflation is 19.6% higher than in January 2020.

Here’s what the latest inflation numbers from the Bureau of Labor Statistics mean for you:

Shelter costs remain stubbornly high

Few Americans have felt the effects of inflation more than the nation’s renters.

Despite a surge in apartment construction in 2023, rents still jumped 6% from a year ago. While that measure has been cooling for 10 straight months from March’s peak of 8.2%, it’s still putting a squeeze on tenants’ finances.

However rising vacancy rates could motivate landlords to lower their asking rents. According to Redfin, asking rents fell 0.8% in December to an average of $1,964 across the nation, marking the third consecutive month of declines.

Still, regions that haven’t been building as much like the Midwest and Northeast continued to see rents climb. In the Midwest, asking rents rose 3.7% year-over-year to $1,434 as of December. While in the Northeast, rents increased 1.7% annually to $2,439.

By comparison, rents in the South fell 1% in December to $1,632, and declined 0.6% to $2,346 in the West, Redfin found.

Household repairs and utilities climb

Keeping your home in good shape has also become more expensive.

The price to repair household items increased 18.2% year over year in January, a record high. That includes things like fixes to household appliances, pest control, and basic upkeep like gardening.

Water and sewage maintenance increased 5.2% on an annual basis, and the price of garbage collection rose 6.4% from a year ago.

Some food prices continue to climb

Food inflation, a sour point for many households, also registered an uptick of 0.4% from December to January and was up 2.6% year over year.

Grocery costs increased by 0.4% over the past month — posting the biggest jump in a year — and were 1.2% higher than a year ago.

A few foods remain stubbornly high. Frozen juices and drinks jumped 29% year over year, an increase of 9.9% from December. Meanwhile, beef steaks cost 10.7% more than they did a year ago, amounting to $11.64 per pound, according to data from the Federal Reserve Bank of St. Louis.

Sugar was up 7.2%, and spices were up 4.6% from a year ago, the BLS found.

The price of eggs, however, was down 28.6% from January 2023. In other words, a dozen grade-A eggs sold for $2.52 this past month, down from $4.82 a year ago, per the St. Louis Fed.

While groceries continued their rise, the cost of eating out didn’t get better either, increasing 0.5% from December and up 5.1% from a year earlier.

Restaurant meals rang in 4.3% higher than a year ago, and even grabbing a quick snack from vending machines was up 10.6%.

"Consumers are still feeling the pinch of higher prices for the things they buy most often," said Lisa Sturtevant, Bright MLS chief economist. "Compared to January 2020, right before the onset of the pandemic, food prices are up by more than 25%."

The cost of driving ramps up

Another blow to consumers’ wallets was auto insurance, which surged by 20.6% year over year in January. That’s equal to the largest increase since 1985.

Owning a car generally seems to have become pricier. Motor vehicle maintenance and servicing increased 5.7% year over year, while repairs jumped 7.9%.

Meanwhile, parking fees and tolls were 4.8% higher than they were in January 2023, up 1.8% from December.

On the bright side, consumers did see some relief at the gas pump.

Gasoline prices (of all types) declined by 6.4% year over year in January and were down 1.5% from a month prior.

Those in the market to purchase a used car or truck, also caught a break. Used vehicles registered an annual decline of 3.5% over the same period and were 3.4% lower than in December.

Certain drugs on the rise

While prescription drug costs grew little, over-the-counter medications are on a hot streak.

The cost of nonprescription drugs rose 9.2% from a year ago, while prescription medications were up just 0.4%. Overall, medicinal drugs were 3% higher than a year ago, just 0.6% down month over month.

Being a sports fan got more expensive

Backing your favorite team is going to cost you.

Specifically, tickets to sporting events rose by a whopping 13.5% from a year ago. The cost of participating in a recreational club, fraternal, or other sports club organization also bumped up by 3.1%.

For instance, an NFL ticket cost an average of $120.94 in 2023. According to Statista, that’s up from $111.75 in 2022, and a low of $62.38 in 2006 when it first began tracking that metric.

If you were to livestream the event, those services also registered an uptick.

Cable, satellite, and live streaming television services jumped 5.7% year over year in January 2024 and were up 0.6% from a month prior. Video subscriptions were also up 2.9% from a year ago.

Fubo TV, for example, raised its subscription plan by $5 to its existing customer base in January, that’s if you were in any Pro, Elite, or Premier plan. Those members were looking at a new price point between $79.99 and $104.99 per month, without including fees or taxes.

Meanwhile, those subscribed to Fubo TV’s regional sports network faced a $1 monthly increase, hiking their membership to between $11.99 per month and $14.99 per month.

Pet ownership costs climb

Pet owners have also struggled under the weight of inflation as rising costs of food, veterinary care, and supplies continued to surge this past year.

Veterinarian services jumped 9.6% from a year ago in January 2024, the highest increase on record.

The uptick in costs over the past year caused some pet owners to delay visits to the veterinarian, according to data from the American Veterinary Medical Association. While vet practice revenue increased by an average of 5.7% between August 2021 and August 2023, the number of clients fell by 2.7%, suggesting that some clients have had to forego medical care for their pets.

Animal lovers saw other costs rise: Pet food increased 4.8% within the past 12 months, and the cost of pet supplies and accessories also registered an uptick of 0.5% from January 2023.

Overall, the cost of pet food is just over 23% higher compared to January 2020, the St. Louis Fed found, despite showing subtle signs of declining since October 2023.

What’s next

While inflation has fallen substantially from its peak of 9.1% in June 2022, everyday prices have failed to reflect relief across the board.

"It’s important to remember that a lower inflation rate does not mean that prices of most things are falling — rather, it simply means that prices are rising more slowly," Sturtevant said in an emailed statement.

Overall, food prices are up by over 25%, gas prices are roughly 20% higher, and rents are up 22% compared to January 2020, right before the pandemic began.

As inflation readings came in above expectations in the January Consumer Price Index report, investors are once again rethinking when the Federal Reserve may cut interest rates. Ahead of the report, thanks to February’s strong employment numbers, bond traders had already pushed back the time they anticipated cuts would start, from March to May. With this hotter-than-forecast inflation report, the bond market now sees the first cut coming in June.

The Bureau of Labor Statistics reported that the Consumer Price Index rose 3.1% on an annual basis and 0.3% every month in January. Both figures were higher than in December, and the annual figure was higher than economists’ expectations of 2.9%. The BLS said more than two-thirds of the monthly increase was attributable to rising shelter costs. Core CPI, which excludes volatile food and energy prices, rose 3.9% on an annual basis and 0.4% every month. Both readings were higher than economists predicted.

“Today’s report showed inflation higher than expected,” says Preston Caldwell, Morningstar’s chief U.S. economist, “but there’s no reason to panic.”

Caldwell still sees a May rate cut as “highly likely,” and points out that shelter and healthcare costs will have a smaller impact on the Personal Consumption Expenditures report—the Fed’s preferred inflation gauge—than on the CPI report.

CPI vs. Core CPI

January CPI Report Key Stats

  • CPI increased 0.3% for the month after rising 0.2% in December.
  • Core CPI rose 0.4% after growing by 0.3% in December.
  • CPI rose 3.1% year over year after increasing by 3.4% the prior month.
  • Core CPI increased 3.9% from year-ago levels after increasing 3.9% in December.

Caldwell notes that on a three-month annualized basis, the inflation rate came in at 2.8% in January, thanks to a 10% drop in energy prices. The core inflation rate, on the other hand, was 4.8%. Core inflation, which excludes volatile food and energy prices, has been much stickier than headline inflation.

Consumer Price Index

Month-over-month changes.

Sticky Shelter Inflation Continues

“Shelter (mostly housing) was the chief culprit for January’s upward inflation surprise,” Caldwell says, “Likewise, it’s been almost solely responsible for inflation’s staying power over the last several months.” According to him, excluding shelter costs, core CPI was just 2.3% annualized over the past three months.

“Leading edge data continues to strongly indicate that an eventual normalization of housing inflation is inevitable,” Caldwell adds, “even while the timing is somewhat uncertain.” Outside of housing costs, Caldwell notes that a jump in healthcare inflation has also been pushing CPI readings higher.

Change in Selected CPI Components

When Will the Fed Cut Rates?

Over the past few months, bond futures traders have continually recalibrated their expectations around Fed rate cuts. “It’s true that a March rate cut ... is now essentially ruled out,” Caldwell says.

As of noon EST Tuesday, traders saw a 35.3% chance of a quarter-point rate cut at the central bank’s May meeting, according to the CME FedWatch Tool. This is up from 17% a month ago. Expectations for a March cut have evaporated from more than 75.0% last month to 8.5% today.

Expectations for May 2024 Federal Reserve Meeting

Probabilities (%) for federal-funds rate level as of Feb. 13, Feb. 12 and Jan. 12.

Caldwell characterizes the bond market’s strong response to the inflation data as an overreaction, in large part because of the differences in the way PCI and PCE inflation are calculated. The distinction comes from how the PCE index incorporates recent increases in shelter and healthcare prices. He says core PCE inflation—the Fed’s preferred measure of whether inflation has reached its 2% target—was just 1.5% in the three months ending in December.

“We think core PCE inflation will remain favorable in coming months (showing a downtrend in terms of the year-over-year numbers), which will push the Fed to cut in May,” Caldwell explains.

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