US Inflation Stays Elevated, Adding Pressure for More Fed Hikes

US consumer prices rose briskly at the start of the year, a sign of persistent inflationary pressures that could push the Federal Reserve to raise interest rates even higher than previously expected.

The overall consumer price index climbed 0.5% in January, the most in three months and bolstered by energy and shelter costs, according to data out Tuesday from the Bureau of Labor Statistics. The measure was up 6.4% from a year earlier.

Excluding food and energy, the so-called core CPI advanced 0.4% last month and was up 5.6% from a year earlier. Economists see the gauge as a better indicator of underlying inflation than the headline measure.

The median estimates in a Bloomberg survey of economists called for a 0.5% monthly advance in the CPI and a 0.4% gain in the core measure. The S&P 500 opened lower and Treasury yields rose. Traders also priced in near-even odds of a quarter-point Fed rate increase in June as well as a higher peak rate.

Both annual measures came in higher than expected and showed a much slower deceleration than in recent months. The figures remain far higher than the Fed’s 2% target, which is based on a separate Commerce Department index.

“It could’ve been worse,” said Stephen Stanley, chief US economist at Santander US Capital Markets LLC, noting declines in used-car prices and airfares. However, “as long as shelter costs are going up as rapidly as they have been, it’s going to be tough to get inflation down anywhere close to where the Fed would like to see it.”