The Bureau of Labor Statistics reported on Tuesday that the consumer price index rose 6.4% from a year ago in January, slightly below December's figure of 6.5%, but above economists' expectations of 6.2%, according to financial data firm FactSet Research Systems.
The Bureau noted that the January figure marked the smallest 12-month increase since October 2021.
Excluding the volatile food and energy sectors, the core CPI rose by an annualized 5.6% in January.
The Federal Reserve will likely closely examine the January CPI report as it prepares for the next monetary policy meeting on March 21-22.
The Fed's key short-term interest rate is now in a range of between 4.5% to 4.75%, after the central bank raised rates by 25 basis points at its February meeting.
As of Thursday morning, according to CME Group's FedWatch tool, shortly after release of the CPI data, market participants' pricing of fed fund futures indicated there is an 87.8% probability that the Fed will increase rates by 25 basis points at the next meeting, and only a 12.2% probability it will increase rates by 50 basis points.
Some recent comments by Fed officials suggest the central bank remains strongly committed to continued rate hikes in order to tame inflation.
At a speech in Orlando, Fla., on Feb. 13, Fed Governor Michelle W. Bowman warned: "I remain focused on bringing inflation down to our 2% goal … I expect that ongoing (rate) increases will be appropriate to bring the federal funds rate to a sufficiently restrictive level and that it will need to remain there for some time to restore price stability."
Nancy Davis, founder of Quadratic Capital Management and portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund, based in
Greenwich, Conn., said by email that the stronger-than-expected CPI figure "still showed a continuation of the months-long deceleration in inflation, and that means inflation might not be heading back to the Fed's 2% target anytime soon."
She added: "While realized inflation remains above the Fed's 2% target, future inflation expectations are around 2%. It's likely a great time for investors to add inflation-linked assets to their portfolios."
Inflation-linked assets, Ms. Davis noted, should be a "standard component of an investment portfolio, as these assets can provide diversification that is uncorrelated to the movements of traditional stocks and bonds."
Quadratic has about $930 million in assets under management.
John Luke Tyner, Fairhope, Ala.-based portfolio manager and fixed-income analyst at Aptus Capital Advisors, said by email that the report is "disappointing" and that it proved that the "core forces of inflation aren't wavering near as fast as hoped."
"With inflation sticky and volatile we continue to see risks to long term structural and systemic inflation becoming imbedded into the system and investor psychology, raising inflation premiums," he added. "This isn't a report that gives the Fed any resolve to slow down."
Aptus has $3.9 billion in AUM.