Inflation rose more than expected in January. The Consumer Price Index rose 0.3% month-over-month versus a 0.2% estimate. Year-over-year, prices rose 3.1% compared to an estimated 2.9%.

When food and energy prices are stripped out, core prices rose 0.4% month-over-month. Economists had been expecting 0.3%. Year-over-year, prices rose 3.9% compared to an expectation of 3.7%.

The data makes it even more likely the Federal Reserve will remain on pause at its March meeting as it tried to bring inflation down to its 2% target.

Yahoo Finance's Brad Smith and Rachelle Akuffo report the breaking numbers.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Stephanie Mikulich

Video Transcript

BRAD SMITH: We've got some breaking inflation data out this morning as CPI for the month of January has just dropped. It came in at 3/10 of a percent month over month. That year over year number coming in a little bit hotter than expected that came in at 3.1% versus the 2.9% that was anticipated here.

Looking a little bit further into the report here as well. CPI take out food and energy month over month. You actually saw that come in at 4/10 of a percent of an increase there. And then on a year over year figure, you saw that come in at 3.9%.

So here we're taking a quick look at the futures to see where that reaction is kind of playing out right now. You're down across the board for the Dow, the S&P 500, and the NASDAQ futures with about an hour until the start of trade here on the day. But again, this signals a hotter read on inflation than anticipated. A larger question of what this trickle through to the Fed conversation will look like as well.

RACHELLE AKUFFO: It's true because we know that the Fed has been looking for this consistency in seeing inflation decline, especially when it comes to core PCE as well. So it does give them a little bit more breathing room, though a lot of concern about how much the Fed is doing at the moment. Is policy too tight at the moment, too restrictive?

And you figure after six months, seven months of this data, the Fed is still not convinced at this point still don't have inflation under control here. You have to wonder then some of the factors outside of the Fed's control contributing to these numbers.

BRAD SMITH: Yeah. It's really interesting. As I'm digging further into this report, one of the huge things to point out, food index. Food index increased by about 4/10 of a percent in January as the food at home index increased 4/10 of a percent and the food away from home. All of those who are going out, having a little bevy with your friends, perhaps watching any type of the sporting matches that are taking place over that month of January. Anyway, you were paying about half a percent more month over month here.

But in contrast here, the energy index here. Energy fell by about 9/10 of a percent over the month. They say that's due in large part to the decline in the gasoline index here. So all these things considered, the shelter index, that continues to rise in January, increasing 6/10 of a percent, contributing over 2/3 of the monthly all items increase that we saw in this report as well.

RACHELLE AKUFFO: And we always keep an eye on what's happening with housing makes up the largest portion of the CPI data. We know that continues to be a bone of contention here. People obviously wanting to see some of these prices moderating here.

And something else that we're going to be looking at later on coming up this hour with some of our reporters, really digging into some of the nuances here because if inflation still isn't tamed at this point, you're seeing some of the market reaction at the moment in extended trading at the moment.

Clearly not getting what they wanted to hear if the Fed has a little bit more room and especially as we continue to look at wage pressure, saying that look, the economy still has more room to run despite the Fed's holding policy right now.

BRAD SMITH: Yeah. I think back to one of the comments from BlackRock's Rick Rieder coming into this report and discussing inflation. He had said at the time that the Fed rightly is unwilling to declare victory yet here. Committee must be pleased by the progress that's been made. I mean, we were expecting a two-handle on this report. We got just a smidge above that.

But ultimately here, he also went on to say, in fact, the core goods CPI on both the three and six-month annualized basis appears a great deal more normal and is in line with the average for the measure from 2014 to 2019. So that a little historical context to pair with these figures that we just got out this morning.