Investing.com -- Wall Street analysts reacted to the latest U.S. Consumer Price Index (CPI) data, which showed stronger-than-expected inflation readings for January 2025.
The CPI increased 0.5% month-over-month, while the core CPI rose 0.4%. The results raised concerns about inflationary pressures continuing into 2025.
Evercore ISI described the CPI release as "much hotter than expected," with price increases driven by medical costs, auto insurance, airline fares, food, and used car prices. The firm highlighted that this stronger-than-anticipated data could lead to higher Treasury yields and a rise in inflation expectations, predicting that the core PCE deflator could increase by +0.44% month-over-month in January.
Wells Fargo (NYSE:WFC) also noted the "upside surprise" in the CPI report, saying it dashed expectations for modest inflation improvement. Wells Fargo suggested that while inflation progress appears stalled, the seasonal factors may still be struggling to capture early-year price increases.
Jefferies attributed the increase in January CPI to "residual seasonality" and a "tricky month" for inflation data. Despite this, the firm remains cautious, indicating that it doesn’t expect a repeat of these increases next month. Jefferies flagged persistent pressure from shelter prices, which have defied expectations of disinflation.
DA Davidson voiced concern that the strong economic environment could make it harder for the Federal Reserve to lower rates, even amid political pressure. The report’s higher-than-expected inflation readings have already sent 10-year Treasury yields to their highest levels in weeks.
Meanwhile, Citi was more optimistic, noting that while the CPI was strong, it expects core PCE inflation to remain softer, projecting only a slight increase in January. The firm anticipates that slowing core PCE inflation in the first quarter will keep the Fed on track to cut rates in May.
Morgan Stanley (NYSE:MS) said the details suggest acceleration due to wildfires and residual seasonality. “The CPI strength also implies a firm core PCE print, but less than the Jan-24 print. Consequently, we expect a step down in y/y core PCE rates in January and the rest of 1Q25,” said the bank.
“This print is still consistent with our call of an extended Fed pause, with only one rate cut in 2025, happening in June,” added the bank.