CPI Inflation Report — Inflation is Accelerating in 2025 (Uncut) 02-12-2025

CPI Inflation Report — Inflation is Accelerating in 2025

The CPI inflation report was released this morning. Inflation came in hotter than expected, so I’m going to show you what this means for interest rates. Okay, so here’s the situation.

Headline inflation came in at 3.0 percent, so that’s an increase from 2.9 percent the prior month. Core inflation came in at 3.3 percent, so that’s also an increase from 3.2 percent the prior month. So both headline and core inflation accelerated.

Headline inflation has now increased for four months in a row. Now I want to show you the highlights of the CPI inflation reports. Shelter inflation was the main driver of core inflation.

The price of food jumped at a rate of 0.4 percent, that’s month over month. Ag prices have increased by 53 percent over the past 12 months. Used vehicle prices increased by 2.2 percent.

Insurance prices increased by 2 percent, so keep in mind that’s the average. And energy prices increased by 1.1 percent, so I just want to say that’s significant because remember in prior years where energy prices were down year over year, not up, so this is a reversal. Okay, so listen, the Federal Reserve’s goal is to get inflation down to a rate of 2.0 percent, right? Up until this point, you could have said it looks like they’re gonna do it.

But now, I mean, take a look. The mentality has gone from, oh, it’s just a bump in the road, to, you know, oh no, it’s stalling now, to, well right now it’s, oh no, inflation is accelerating. Now I want to show you this.

This comes from the CME FedWatch tool. If the Federal Reserve cuts interest rates, that is inflationary, right? The next Federal Reserve meeting is on March 19th. Before the release of this report, the market expectation was a 96 percent chance that the Federal Reserve does not cut interest rates at that meeting.

So even before, you know, the results of this report, it was basically a given that they’re not going to do anything in March. Now after the CPI inflation report was released, the chances of no cut increased to 97.5 percent. So basically inflation came in hotter than expected, which means that it’s less likely that the Federal Reserve will cut interest rates because again, cutting interest rates is inflationary.

Now the following Fed meeting takes place on May 7th. Before the report, the odds that they do not cut interest rates at that meeting was a 78.7 percent. After the report, the odds of no cuts increased to 88.5 percent.

The market now believes that the next interest rate cut is going to happen in September. Now I want you to know that Jerome Powell, Chair of the Federal Reserve, has been giving his testimony to Congress yesterday and today. And here are the highlights of what he said.

There is no need to be in a hurry to cut interest rates. Cutting interest rates too fast or too much will hinder their progress on inflation. They will be assessing the incoming data and they’re going to be flexible.

If there’s a lack of progress on inflation, then they will not cut rates. Now I want to show you the video clip of him giving his testimony. With our policy stance now significantly less restricted than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance.

We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC will assess incoming data, the evolving outlook, and the balance of risks.

As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.

We are attentive to the risks on both sides of our dual mandate and policy is well positioned to deal with the risks and uncertainties that we face. And now I want to show you this video clip. It’s Powell’s response in his testimony to this question about the disconnect.

So basically all the economic reports are coming in great and the stock market is near all-time highs, right? Then why don’t most Americans feel like they’re thriving? And Powell responds that Americans are feeling strapped because of the several years of inflation. People hate inflation and how bad it is and this makes the Federal Reserve want to get inflation down to 2% and keep it there. So I want to show you.

And while we see indications that inflation may be slowing, too many of our constituents are still facing high prices and economic uncertainty. We need to do everything that we can to address this anxiety and the realities that Americans are facing. And there seems to be a disconnect.

While the economy is doing well here on the ground, people aren’t really feeling that. So Mr. Powell, can you talk about from your perspective just what is driving this disconnect between traditional economic indicators such as GDP growth and the stock market performance and the tangible benefits for families? I’d be glad to. So it is clear that the overall aggregate numbers are just very, very good for the economy.

4% unemployment, inflation down to 2.6% last year and the economy growing well in excess of 2%. These are good numbers. But what people are feeling is the results of several years of inflation.

And particularly for people in the low and moderate income category, they’re really feeling it. If you look at the earnings releases and press conferences that they do, that companies like the dollar stores and things like that do, who deal a lot with low and moderate income people, they’re all telling you that those consumers are feeling really strapped. So we do understand that.

And we try to keep that in mind even though we acknowledge that the overall data are good, we see what people are feeling. And that’s inflation. So it’s just another reminder how much people hate inflation and how bad inflation is for people, high inflation.

And it just furthers our resolve to get inflation back to 2% and keep it there. Now, I want to show you that the Federal Reserve in their decision-making process, they’re still waiting on the development and the impact of Trump’s policies. So one example is tariffs.

So Austin Goolsbee, Federal Reserve Bank President of Chicago said, If we see inflation rising or progress stalling in 2025, the Fed will be in a difficult position of trying to figure out if the inflation is coming from overheating or if it’s coming from tariffs. That distinction will be critical for deciding when or even if the Fed should act. So Goolsbee also said, Now we got to be a little more careful and more prudent of how fast rates come down because there are risks that inflation is about to start kicking back up again.

So that should give you a sense of where the Federal Reserve stands right now. So it’s not just Powell that’s saying it. This is a shared sentiment of no rush to cut rates.

It’s a wait and see approach. And as usual, they’re going to be assessing the data. So nothing’s changed basically.

So in summary, the inflation report came in bad and prices keep rising. What’s new, right? Please subscribe. I thank you for the support.

I’ll keep you updated and I wish you a very nice day. Take care.