Intelligent Investment
January Inflation Exceeds Market Expectations
February 12, 2025 2 Minute Read
Executive Summary
- The Consumer Price Index (CPI) increased to 3.0% on an annual basis in January versus expectations of 2.9%.
- Annual core inflation, which excludes food and energy prices, increased to 3.3% versus expectations of 3.1%.
- There were notable annual increases in transportation (8.0%), shelter (4.4%), food (2.5%) and energy services (2.5%).
- Barring any deterioration of the labor market, CBRE expects that the Fed will not change interest rates through the first half of the year as it assesses potential price pressures from any potential trade or fiscal policy changes.
- Today’s hot inflation reading put upward pressure on the 10-year Treasury yield. While still a headwind for investment activity, we expect long-term bond yields to wane with easing inflation later this year.
The Bottom Line
Core CPI, which excludes food and energy, increased to 3.3% year-over-year in January. Prices remain persistently high in the services sector, with an annual gain of 4.3% (excluding energy). The CPI’s shelter component had its smallest annual increase (4.4%) since January 2022 but accounted for roughly 30% of the index’s monthly increase.
We expect price increases will moderate toward—but remain well above—the Fed’s 2% target in 2025 as productivity gains and a slightly cooler job market lower growth in unit-labor costs.
Higher long-term interest rates will be a headwind for investment activity in 2025. However, the effects will be somewhat offset by solid economic growth, strong real estate fundamentals and tight credit spreads. On balance, we expect a modest increase in real estate investment activity this year.
