by Kyle S. Plotkin
Investment Advisor Representative
[email protected]
We’ve talked many times in recent years in this space about inflation. The consensus was that we had moved past the high inflation rates of the post-pandemic period. Grocery price hikes were slowing. Oil prices have been relatively stable for the past year. Inflation has been steadily moving back towards the Fed’s 2% target. The Fed even lowered rates by a full point over the past two quarters with hopes for further cuts as we get deeper into 2025.
The January inflation report, released this week, may throw some cold water on those projections. The government’s inflation tracker, the Consumer Price Index (CPI, for short), rose 0.5% over the previous month for the largest monthly increase since August 2023. This will dampen expectations for further Fed rate cuts and makes it unlikely for a cut at the Fed’s meeting in mid-March. According to CME FedWatch, expectations have lowered to just one rate cut this year and I’ve even seen some speculation that rate hikes aren’t out of the question as we move forward.
Economic protectionism threatens to cause further inflation, with new tariffs on imported steel and aluminum set to go into effect on March 12 in addition to continued threats of blanket tariffs on goods from Mexico and Canada. Trump’s calls for interest rates to be lowered could clash with the expected price increases from the tariffs, so this is something to keep an eye on moving forward.
As for the details inside the inflation report, it shows that price movements on various industries and sectors are varied. More durable goods like appliances, electronics, and furniture have actually shown negative inflation (price reductions) over the previous January. However, auto insurance, airfare, and prescription drugs are showing some of the highest inflation year-over-year.
Overall, groceries are up 1.9% or less than the general 3.0% index. However, that doesn’t mean things are getting cheaper. The price of eggs jumped 15.2% monthly and is now 53% higher than this time last year. A dozen large Grade A eggs, on average, cost $4.95 in January, compared to $2.52 at the beginning of 2024. It was even reported that Waffle House has added a 50 cent surcharge for every egg purchased in their restaurants.
Inflation will be an interesting thing to watch as we move through this year, and the impact it will have on both your wallet and the Fed’s interest rate policy will be important as we get deeper into 2025.