Inflation Cools Less Than Expected, Showing Worrying Staying Power and Keeping Fed Rate Hikes on the Table

Inflation cooled less than expected in January, showing worrying staying power even when stripping out volatile food and fuel costs. This is a reminder that bringing price increases under control remains bumpy.

Core inflation, which excludes food and fuel, held roughly steady on an annual basis - climbing 3.9% from a year earlier. This measure rose the most in 8 months on a monthly basis.

Investors sharply pared back chances of an imminent rate cut after the data, betting the Fed won't cut rates at their next meeting in March or even in May. This signals they think fresh inflation figures will keep the Fed wary.

Food inflation accelerated slightly in January compared to December. Grocery prices rose 0.4% and dining out rose 0.5% - faster monthly rates than the month before. But the annual rate of food inflation still slowed.

Painfully slow decline in shelter inflation continued. Rents rose 6.1% from a year ago and some measures of shelter inflation accelerated monthly. Private data shows rents falling but that cooling is taking longer than expected.