US Inflation Unexpectedly Rises... 10-Year Treasury Yield Soars to 4.631%

Persistent Housing Costs, Energy, Food, and Education Expenses Rise

Some Companies May Have Preemptively Raised Prices Considering Tariffs

Before the Trump tariffs even took full effect, U.S. consumer prices rose more than expected.

According to the U.S. Department of Labor on the 12th (local time), the January consumer price index increased by 0.5% from the previous month, reaching an annual rate of 3.2%. The market, which expected a 0.3% rise to an annual rate of 2.8%, was shocked.

The core consumer price index, excluding energy and food, also rose 0.4% in a month, recording an annual rate of 3.2%. This too exceeded expectations.

With consumer prices higher than expected, the 10-year Treasury yield jumped 9 basis points (1bp=0.01%) to 4.631%. The policy-sensitive 2-year Treasury yield also rose 7.7bp to 4.367%.

U.S. stock futures for the S&P500 and Nasdaq fell sharply by more than 1%.

The Department of Labor stated that housing costs, which account for 30% of the total price index, rose 0.4% monthly, and energy costs increased by 1.1% in just one month due to rising oil prices. Additionally, the avian flu caused egg prices to soar, contributing to the unexpected rise in consumer prices this month, along with food and education costs.

Excluding December, the U.S. headline consumer price index has risen by an average of 0.3% per month.

January was before the full effect of Trump's tariffs. However, some companies may have preemptively raised prices in anticipation of tariffs.

The impact of tariffs may become more pronounced from February and March. Earlier this month, President Trump announced a delay in the 25% tariff on Canadian and Mexican goods until March. However, an additional 10% tariff on Chinese goods is taking effect this month. Furthermore, a 25% tariff on all steel and aluminum will be implemented starting in March.

Steel and aluminum will increase cost burdens across the U.S. industry, from automotive to food manufacturing and construction. To save U.S. steel companies, which are analyzed to have production costs more than 20% higher than imported steel and aluminum, almost all industries in the U.S. must bear the cost increase.

Trump plans to announce reciprocal tariffs this week. If this is not just a negotiation strategy but leads to actual implementation, U.S. inflation is likely to rebound this year. Despite Trump's pressure for interest rate cuts, there may be talk of inevitable rate hikes.

Foreseeing this situation, Federal Reserve Chairman Jerome Powell emphasized at the Senate Banking Committee the previous day that there is no need to rush interest rate cuts. Chairman Powell stated, "Inflation eased a bit last year," adding, "Recent progress has been challenging."

Richard Flynn, Managing Director at Charles Schwab, told Bloomberg in an interview, "There will be no rate cuts in the first half of this year." Whitney Watson of Goldman Sachs Asset Management said, "The Fed is likely to remain in a wait-and-see mode for the time being."

Guest reporter Kim Jung-ah kja@hankyung.com