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

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Written By Maya Cantina
  • US inflation slowed to 3.1 percent in January, a smaller than expected drop

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

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

Markets on Tuesday seemed to rule out the possibility of a rate cut at the Fed’s upcoming March meeting.

Prices were up by 0.3 percent between December and January – an increase from the 0.2 percent the month before, according to the latest CPI data.

Rent was one of the main items dragging up inflation. The shelter index increased 0.6 percent in January after rising 0.4 percent in December. And car insurance insurance increased 1.4 percent for the month.

Annual inflation was 3.1 percent in January, which was a decrease from 3.4 percent in December but still 0.2 percentage points higher than expected

The inflation figure plays a big part in the whether the Federal Reserve will cut interest rates soon rather than later. Pictured is its chairman Jerome Powell

The inflation figure plays a big part in the whether the Federal Reserve will cut interest rates soon rather than later. Pictured is its chairman Jerome Powell

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

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

Economists and markets were previously expecting consumer prices to be up 2.9 percent, which would have been the smallest year-on-year change in two years.

‘The headline year-over-year increase came in at 3.1 percent, better than December’s 3.4 percent, while the core remained at 3.9 percent, in other words, not close to where the Fed wants to be,’ said Mark Hamrick, senior economic analyst at Bankrate.

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

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

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

American 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 want to see more evidence that inflation will continue to decline before cutting rates.

‘Attentions turn to the following May and June meetings,’ said Hamrick.

Retail sales data on Thursday and producer price index (PPI) numbers on Friday are now widely anticipated, as are comments from Fed officials that may hint as to future rates.

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