US inflation unexpectedly rises to 3%
NEWSFLASH: US inflation has unexpectedly risen, suggesting that the Federal Reserve won’t cut interest rates any time soon.
The consumer prices index rose at an annual rate of 3% in January, according to official figures. This was up from 2.9% in December, and wrongfooted economists who had expected inflation to hold steady. Consumer prices rose by 0.5% between December and January.
What’s more, the core rate – which strips out energy and food costs as they can be volatile – was also higher than expected, rising to 3.3% from 3.2% in December. Wall Street had expected it to dip to 3.1%.
The surprise rise in inflation is a blow to Donald Trump, who has been pushing for interest rate cuts. During the election campaign, he had vowed to “immediately bring down prices, starting day one”.
Key events
Closing summary
Inflation ticked higher in the US in January as Donald Trump returned to office with a pledge to rapidly reduce prices.
The consumer price index rose by 3% last month – up slightly from December’s annualized 2.9% reading.
The closely watched index rose 0.5% on a month-to-month basis, stronger than the 0.3% forecast by economists.
The dollar rose on the news while stocks fell on both sides of the Atlantic, and government bond yields climbed, as investors digested the data – which dented hopes for interest rate cuts this year.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care! JK
James Knightley, chief international economist at ING, said about the surprise rise in US inflation:
US inflation came in well ahead of expectations, prompting the market to dramatically reprice the prospect of rate cuts. Potential tariffs add upside risk to inflation in coming quarters, but there are some encouraging signs that housing costs will slow meaningfully later in 2025 and keep the door open to the second half of the year cuts we are forecasting.
Richard Partington
The permanent secretary to the Treasury, James Bowler, has said he will undertake a leak inquiry into Bloomberg’s article on the OBR forecasts.
We will be investigating that and following up as a potential leak.
He said it was important to keep the forecasting process private to give the government space to develop policy.
Bloomberg reported yesterday that Rachel Reeves faces a new risk of having to make spending cuts after the UK government’s fiscal watchdog downgraded its growth forecast, leaving Britain’s finance minister scrambling to meet her budgetary rules when a key report is published next month. The news agency said:
The forecast delivered last week to the chancellor by the Office for Budget Responsibility left Reeves facing a small deficit when it delivers its update on the UK economy on March 26, people familiar with the matter told Bloomberg. They requested anonymity discussing the preliminary and private forecast, the first of five the OBR will produce ahead of its report.
The combination of the growth downgrade and bond market moves that have raised government borrowing costs since October wiped out the slim £9.9bn margin Reeves had in her 30 October budget against her so-called “stability rule” that day-to-day spending must be paid out of taxes.
Here’s our full story on US inflation:
The big price surge in January, coupled with the prospect of inflationary US tariffs, takes interest rate cuts off the table this year, says one economics consultancy.
Paul Ashworth, chief North America economist at Capital Economics, said:
That lends support to our view that, with president Trump threatening to impose wide-ranging inflationary tariffs, the Fed won’t resume cutting interest rates this year…
Inflation has now been around these rates for some time and clearly isn’t coming down decisively any more. The upshot is that markets are now only pricing in one 25bp rate cut by the Fed this year. We still think that’s too dovish.
With tariffs likely to keep core PCE [personal consumption expenditures price index] inflation close to, or above, 3% this year now, the Fed will stand pat for at least the next 12 months.
US egg prices rise by 15.2%, biggest increase since 2015
Food costs rose by 2.5% in January, partly due to higher egg prices, while energy prices climbed by 1%, according to the US Labor Department’s latest monthly consumer prices snapshot.
Last August, Donald Trump had pledged to bring prices for groceries down “from day 1,” when he gave a press conference surrounded by groceries including meat, milk and eggs.
The latest figures show egg prices rose by 15.2% in the year to January, the largest increase since June 2015. It accounted for two thirds of the monthly increase in the food at home component.
Egg prices have risen after a bird flu outbreak that has led to sharply reduced supply since 2022, and intensified in the final months of 2024.
The popular southern breakfast chain Waffle House announced a 50 cent surcharge per egg in early February because of the “nationwide rise in cost of eggs,” according to signs posted at its restaurants.
The dollar jumped after the surprise rise in US inflation, while the yield – or interest rate – on US government bonds also increased.
The dollar climbed by 0.5% against a basket of major currencies, after consumer prices rose more than expected in January, increasing expectations that the Federal Reserve – America’s central bank – will hold interest rates higher for longer, as it battles to bring inflation down to its target.
European stock markets reversed earlier gains and fell between 0.1% (UK) and 0.3% (France).
Jochen Stanzl, chief market analyst at CMC Markets, said:
The US session today is up for some serious volatility. Today’s CPI numbers are not a continuation of last month’s decline in core inflation. Quite the opposite. What we’re seeing is a rise in the headline inflation numbers.
The data is very important for the market as it has a direct influence on what the Fed will do next.
What makes today’s rise in CPI inflation data so precarious is that many believe this is just the beginning, as tariffs could push inflation even higher. Market volatility is set for a perfect storm as the mix of higher inflation and the threat of tariffs serve to scare investors.
Given today’s inflation numbers, it is questionable whether the Fed will be able to deliver on its two rate cuts planned for 2025. The market is pricing in only one rate cut from the Fed and today’s CPI number may help to price that out even further.
Short-term volatility is one thing. The direction of inflation is still seen as down and that’s what matters for the overall direction of the markets. But it may take some time for the storm from today’s missed CPI number to settle.
US inflation unexpectedly rises to 3%
NEWSFLASH: US inflation has unexpectedly risen, suggesting that the Federal Reserve won’t cut interest rates any time soon.
The consumer prices index rose at an annual rate of 3% in January, according to official figures. This was up from 2.9% in December, and wrongfooted economists who had expected inflation to hold steady. Consumer prices rose by 0.5% between December and January.
What’s more, the core rate – which strips out energy and food costs as they can be volatile – was also higher than expected, rising to 3.3% from 3.2% in December. Wall Street had expected it to dip to 3.1%.
The surprise rise in inflation is a blow to Donald Trump, who has been pushing for interest rate cuts. During the election campaign, he had vowed to “immediately bring down prices, starting day one”.
The British economy is on course to expand by 1.5% this year after the budget gave a boost to public spending but could be blown off course if Donald Trump goes ahead with threatened tariffs, a leading economic thinktank has warned.
In a boost to Rachel Reeves after a bruising month of negative economic figures, the National Institute of Economic and Social Research (NIESR) upped its annual growth prediction from 1.2% to 1.5%.
However, it cautioned that an expansion of tariffs after the US president’s 10% levy on imports from China and 25% on Canada and Mexico – now paused for a month – could reduce the pace of growth to 1.3%, and by more if they hit UK businesses directly.
On Monday, Trump announced a 25% tariff on steel and aluminium imports from 12 March, which will hit UK steelmakers and heighten fears that similar sanctions could be extended to other sectors.
The UK advertising watchdog has banned an advert from high street retailer Next for featuring an “unhealthily thin” model in digitally altered clothing.
The advertisement, which ran on its website, featured a model marketing Next’s “power stretch denim leggings”.
The Advertising Standards Authority (ASA) investigated the ad after receiving a complaint that the model appeared “unhealthily thin” and said that Next’s marketing was irresponsible.
Next said that its aim was to market the product in a way that was “authentic and responsible” and that it used models “ranging from slim to plus size”.
The department store chain Beales is to close its last remaining shop, in Poole, for the second time as it blamed rising costs linked to Rachel Reeves’s budget for a failed rescue attempt.
The 144-year-old retail institution, which first opened its doors in Bournemouth in 1881, collapsed into administration in January 2020, leading to the closure of all its 22 stores. The store in Poole, on the south coast of England, reopened under new ownership later that year, followed by two other outlets – in Peterborough and Southport – which later closed in 2023 and last September, respectively.
Tony Brown, the chief executive and majority owner of the revived Beales, said he was closing the final outlet in Poole in May because of the “additional costs being foisted on us”. In October, Reeves announced an increase to employers’ national insurance contributions, the rise in the legal minimum wage and a reduction in business rates relief from April.
Sky Mobile to hike bills by £1.50 a month
Sky Mobile will hike monthly bills for customers who are out of contract by £1.50 from Friday – ahead of increases from other providers from next month.
This adds up to an extra £18 a year for pay-monthly and Sim-only customers, and comes into effect on Friday – Valentine’s Day.
Those who are within their contract term will not see any price change.
Sky Mobile is also increasing the cost of calls to the EU and EEA by 4p to 25p a minute, while calls to the rest of the world will rise by £1 to £3.50 a minute. The cost of sending an international text message outside Europe goes up by 20p to 95p.
A Sky Mobile spokesman said:
To ensure we can continue to invest in our services and deliver a great experience, the majority of our out of contract customers will see their monthly bill increase by £1.50 in February.
Some 37% of all pay-monthly mobile customers are out of contract, according to the telecoms watchdog Ofcom.
As Sky Mobile has about 3 million customers, it is estimated that up to one million could see their bills increase.
Customers who are unsure about the status of their contract can text ‘INFO’ and their date of birth in the format DDMMYY to 85075. The provider should then message back to clarify, also how much they will charge in exit fees for leaving.
Most other mobile networks implement their mid-contract price increases around 1 April.
Alastair Douglas, who runs the personal finance app Totally Money, said:
There’s a lot of deals out there, with varying contract lengths, voucher incentives, and offers. Just shop around to see what each provider is offering, and double-check the network coverage before signing up.
It might also be worth considering buying a handset and getting a separate Sim-only plan – Ofcom estimates that on average it’s 23% cheaper than getting a packaged contract. You could even purchase the phone with a 0% credit card, allowing you to spread payments for up to 22 months without paying any interest.
Top Spanish winemaker to send buyers ‘security stock’ ahead of potential US tariffs
With new US tariffs looming over the European Union, a top Spanish winemaker has been sending more crates to America to hedge against the potential duties.
Luisa de Paz, export manager for the Bodegas Protos winery in the Ribera del Duero region, said the company was speeding up orders to create a “security stock,” in case the US applies a tariff to EU wine exports potentially as high as 10%.
Donald Trump has announced a barrage of new US tariffs since he became US president on 20 January. He said over the weekend that he would announce reciprocal tariffs for all countries, to take effect almost immediately, matching the tariff rates levied by other countries. “Very simply, it’s ‘if they charge us, we charge them’,” Trump said.
De Paz told Reuters:
We began preparing ourselves at the end of the year after he was elected. We expedited orders so that they [buyers] would have enough for the first six months. They have a security stock.
Sending extra stock will allow wine importers to stagger price increases in the coming months if new tariffs are introduced, she said.
The United States is the second-biggest export market for Spanish winemakers, after Germany. Protos exports around 250,000 bottles to the US every year, its No 2 market after Mexico.
Trump has already announced 25% tariffs on imports from Canada and Mexico, two of the US’ largest trading partners, but paused them for a month to allow for negotiation.
The UK drinks giant Diageo intends to ship more products into the US before those tariffs kick in – which would affect tequila and Canadian whisky in particular.
Diageo, the company behind Smirnoff vodka, Guinness and Johnnie Walker whisky, has warned the tariffs could damage a nascent recovery in its sales and result in a $200m (£161m) hit to profits.
Chinese tech stocks surf on DeepSeek wave
Chinese tech stocks are surfing on the DeepSeek wave, analysts say, with internet giant Alibaba gaining 8.5% today, and more than 45% over the past month.
The Hang Seng TECH Index in Hong Kong rose by 2.7% today, and has rallied by 25% over the past month – entering a bull market (when stock prices have gone up 20% or more from the previous low for a sustained period of time).
Shares in the Chinese carmaker BYD rose by 4.6% today and are up by nearly 30% since mid-January.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explained that is is on the back of:
the news that the company plans to integrate software from DeepSeek in its cars and the announcement that they will offer God’s Eye – their driver assistance system – in China for free help boosting the outlook for the Chinese electric vehicle giant and narrow the gap with Tesla – which on the other hand is falling from grace on slowing sales – not only due to the slowing global appetite for electric cars but also due to Elon Musk’s involvement in world politics.
Overall, stocks in Hong Kong didn’t look this promising in a while, and there is substantial room to extend gains before retesting the 2018 and 2021 peaks. Chinese tech giants have two key advantages. 1. They have Big Tech names that have a proven track record for building game-changing technology – like Alibaba and Tencent. And 2. Chinese consumers tend to be easier to adopt new technologies allowing the technology advances to spread faster.
Does that counterweigh the political, geopolitical and trade risks? Time will tell.
Joanna Partridge
One of the UK’s biggest providers of motor finance has warned it expects to set aside up to £165m in the first half of its financial year to cover possible legal and compensation costs as a result of the car loans commission scandal.
Close Brothers said it had come up with the estimate following a “thorough assessment” of the long-running case, although it warned there was still “significant uncertainty” over the outcome of appeals and the ongoing investigation by the Financial Conduct Authority (FCA).
“The ultimate cost to the group could be materially higher or lower than the estimated provision,” the lender said in a statement to investors.
The provision comes after Close Brothers cancelled its dividend and announced plans to raise £400m to shore up its balance sheet.
Sales of annuities in the UK jumped by 20% last year to hit a ten-year high, according to the Association of British Insurers.
An annuity converts your savings into an annual pension that pays you a guaranteed income for life, or for a specified period. The bond market sell-off last month that pushed yields, or interest rates, to multi-decade highs was a boon for annuities.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explained:
We can expect 2025 to have got off to a flying start too. After years in the doldrums, the market has been kick-started off the back of rising interest rates and soaring gilt yields and this has tempted retirees back to the market. Total annuity sales topped £7bn.
The bond market dramas at the start of the year may have been unsettling for investors, but they were a boom time for annuities. Current incomes remain just below the all-time highs experienced after the mini-budget [in September 2022].
The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get an income of up to £7,490 per year from a single life level annuity with a five-year guarantee, so interest remains high, she said.
Morrissey said the ABI data shows that more people are shopping around for the best annuity for their needs using search engines, for example. (Given that annuities cannot be unwound once bought this is vitally important). There’s also evidence that more people are taking financial advice to make sure they get the best deal.
There are also signs that people are tailoring their annuity to fit their circumstances with sales of joint life, enhanced and escalating annuities all on the rise, she added.
