Inflation Jumps to 3% in January, as Grocery and Gas Prices Climb

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Inflation Jumps to 3% in January, as Grocery and Gas Prices Climb/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. inflation rose to 3% in January, driven by higher grocery, gas, and used car prices, according to the latest Labor Department report. The increase complicates the Federal Reserve’s decision on interest rates, making further cuts unlikely in the near term. While inflation has fallen significantly since 2022, it remains above the Fed’s 2% target. Meanwhile, new Trump administration tariffs could push prices even higher later this year.

U.S. Inflation Jumps in January: Quick Look

Inflation Rate – Consumer prices rose 3% year-over-year in January, up from 2.9% in December.
Core Inflation – Excluding food and energy, prices climbed 3.3%, slightly above December’s 3.2%.
Monthly Increase – Prices rose 0.5% from December, the largest jump since August 2023.
Key Price Hikes – Gas, groceries, and used cars saw notable increases.
Federal Reserve’s Stance – Rate cuts are unlikely until inflation declines further.
Impact of Tariffs – New import taxes could push inflation higher in late 2025.

Inflation Jumps to 3% in January, as Grocery and Gas Prices Climb

Deep Look: Inflation Rises as Fed Watches Closely

Inflation Accelerates After Months of Decline

After steadily declining through 2023, inflation has remained above the Federal Reserve’s 2% target for six months. The latest 3% annual increase in January marks another setback in the battle against rising prices.

On a monthly basis, inflation climbed 0.5% from December, the sharpest rise since August 2023. Core prices, which strip out volatile food and energy costs, increased 3.3% from a year ago and 0.4% from the previous month—the biggest jump since March 2024.

“It’s a reminder that inflation is still a challenge, even as we’ve made progress since 2022,” said one senior economist.

What’s Driving Inflation Higher?

Several key factors contributed to rising consumer prices in January:

Grocery Prices – Food costs jumped significantly, impacting household budgets.
Gas Prices – Higher oil prices pushed up gasoline costs, reversing earlier declines.
Used Cars – Prices for pre-owned vehicles rose, a trend that had eased in late 2024.
Early-Year Price Adjustments – Many businesses typically raise prices in January, contributing to inflation spikes.

Federal Reserve: No Rush to Cut Interest Rates

The latest inflation data likely delays any potential interest rate cuts by the Federal Reserve, which raised rates aggressively in 2022 and 2023 to combat inflation. The Fed lowered its benchmark rate three times in late 2024, bringing it down to 4.3%, but is now in a holding pattern.

Federal Reserve Chair Jerome Powell made it clear in testimony before Congress this week:

“We do not need to be in a hurry to cut rates.”

With inflation still stubbornly above target, borrowing costs for mortgages, auto loans, and credit cards are unlikely to drop in the near future.

Trump’s Tariff Plan Could Push Inflation Higher

President Donald Trump’s new trade policies are another factor that could keep prices elevated.

New Steel & Aluminum Tariffs – 25% import duties announced Monday.
More Tariffs Possible – Future tariffs on China and Mexico could raise consumer costs further.
Goldman Sachs Forecast – Economists predict that inflation would have dropped to 2.3% by year-end without tariffs—but could now stay around 2.8% instead.

Powell acknowledged that tariffs could complicate the Fed’s inflation fight, stating:

“Tariffs can push prices higher, but the impact depends on how many imports are affected and for how long.”

What’s Next for Inflation and the Economy?

Will the Fed Cut Rates? – Rate cuts are on hold, but if inflation drops below 2.5%, the Fed could lower rates later in 2025.
How Will Tariffs Impact Prices? – New tariffs could push inflation higher in late 2025, affecting consumer goods and industrial materials.
Will Wage Growth Keep Up? – If wages don’t rise alongside inflation, consumer spending could slow, impacting economic growth.