Eggs, Cars, Energy, and Insurance Drive Inflation Higher in January
Eggs, Cars, Energy, and Insurance Drive Inflation Higher in January
Inflation started 2025 on an uncomfortable note, with core CPI rising 0.45% month-over-month, its hottest reading since April 2023. Year-over-year, core CPI is up 3.3%, marking a slight acceleration from prior months.
The bad news: Price pressures remain broad-based. Grocery prices rose 0.5%, led by a 15% spike in egg prices, which may not have peaked yet. Motor vehicle insurance jumped 2.0%, reflecting lagged effects of past inflation in auto repairs and replacements. Used car prices rebounded 2.2%, reversing recent declines, and medical commodities rose 1.2%.
The good news: Housing inflation continues to normalize. Rent and owners’ equivalent rent (OER) rose just 0.32% month-over-month, nearly in line with 2019’s pre-pandemic pace. On a three-month annualized basis, housing inflation is now running at 3.58%, suggesting that one of the biggest drivers of past inflationary spikes is under control and back to normal.
Still, inflation remains higher than hoped. Short-term trends point to renewed stickiness: Core CPI rose at an annualized pace of 5.2% over the past month, 3.6% over three months, and 3.4% over six months. Optimists (including this author) once argued that inflation was largely a shelter story, but even excluding housing, price growth remains elevated. The disinflationary boost from falling goods prices in 2024 has faded, with apparel (-1.4%) being one of the few categories to post an outright decline.
What’s next? Seasonal factors could have exaggerated January’s heat, as they did in prior years. But for now, we’re stuck in a choppy 3% inflation world—one where “the bad quarters are REALLY bad”, to quote former Chairman of the Council of Economic Advisers Jason Furman, and markets remain on edge for signs of a sustained cooling.
The hotter-than-expected inflation report is likely to push back expectations for Federal Reserve rate cuts, keeping borrowing costs elevated for longer. Higher interest rates mean tighter financial conditions for businesses, particularly in capital-intensive sectors like manufacturing and construction, which have already struggled with weak hiring. If rates stay high, some employers may delay investment and expansion plans, waiting for clearer signals that inflation is firmly under control before committing to higher payrolls.
Take a tour of the latest data on inflation through ZipRecruiter charts.
