Inflation slows to 3.1% in January – but is still hotter than expected and causes Dow and S&P to dive as investors all but rule out March rate cut

  • US inflation slowed to 3.1 percent in January, a smaller-than-expected drop
  • High inflation was driven by shelter and auto insurance, CPI data showed
  • The S&P 500 and Dow Jones were both lower when markets opened on Tuesday

Annual inflation was 3.1 percent in January – 0.2 percentage points higher than expected.

The higher than expected inflation may be an indication that the Federal Reserve is unlikely to cut record high interest rates as soon as expected.

Markets on Tuesday appeared to have ruled out the possibility of a rate cut at the Fed’s upcoming March meeting.

Prices rose 0.3 percent between December and January — an increase of 0.2 percent the previous month, according to the latest CPI data from the Bureau of Labor Statistics.

Rent was one of the main items that drove up inflation. The shelter index rose 0.6 percent in January after rising 0.4 percent in December.

Annual inflation was 3.1 percent in January, down from 3.4 percent in December, but still 0.2 percent higher than expected.

Annual inflation was 3.1 percent in January, down from 3.4 percent in December, but still 0.2 percent higher than expected.

The inflation rate plays a big role in whether the Federal Reserve will lower interest rates sooner rather than later.  Pictured is the chairman, Jerome Powell

The inflation rate plays a big role in whether the Federal Reserve will lower interest rates sooner rather than later. Pictured is the chairman, Jerome Powell

Auto insurance insurance rose 1.4 percent for the month, but used cars and trucks fell 3.7 percent between December and January.

The cost of groceries also rose again, with the CPI index for food at home rising the most in a year.

Eggs were a big exception, down a whopping 28.6 percent since January 2023.

Stock futures fell straight after the news. The Dow Jones fell 300 points, or nearly 1 percent, and the S&P 500 fell 1.1 percent — below the 5,000 milestone it rose to on Friday.

“The January inflation report came in hot overall and has the potential to spook investors after a big rally over the last few months,” said Bret Kenwell, an analyst at eToro.

Economists and markets had previously expected consumer prices to rise 2.9 percent, which would be the smallest year-on-year change in two years.

“YoY core growth came in at 3.1 percent, better than December’s 3.4 percent, while core remained at 3.9 percent, in other words, not close to where the Fed wants to be,” says Mark Hamrick, senior economic analyst at Bankrate.

Core CPI excludes food and energy and is a figure the Fed pays close attention to when setting rates.

Although car insurance was significantly higher than last year, the price of used cars was lower

Although car insurance was significantly higher than last year, the price of used cars was lower

The CPI index for food at home increased the most in a year.  Pictured are shoppers outside a Kroger in Dearborn, Michigan

The CPI index for food at home increased the most in a year. Pictured are shoppers outside a Kroger in Dearborn, Michigan

US consumer expectations were for a fairly stable inflation outlook for the start of the year, a New York Fed survey showed.

Several Fed officials, including Chairman Jerome Powell, said last week they wanted to see more evidence that inflation would continue to fall before cutting rates.

“Attention goes to the next May and June meetings,” Hamrick said.

Data on retail sales on Thursday and producer price index (PPI) numbers on Friday are now widely expected, as are comments from Fed officials that could point to future rates.