The high inflation of the past few years is continuing its bumpy ride back down to earth.

The cost of living, as measured by the Consumer Price Index, rose 3.1% over the year as of January, down from 3.4% in December and the lowest since June, the Bureau of Labor Statistics said Tuesday. The annual inflation was higher than the 2.9% rate that forecasters expected, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.

Prices for gasoline fell in January from December on a seasonally adjusted basis, helping drive down the overall inflation rate despite sharp upticks in food and shelter. The price of food rose 0.4% from December to January, the biggest monthly increase in a year. "Core" inflation, which excludes food and energy prices, fell slightly to 3.9% over the year, where forecasters had projected it to drop to 3.7%, suggesting that price increases are staying more stubborn than expected.

The data showed that the downward trajectory of the high inflation that rocked household budgets and the economy since mid-2021, and which peaked at 9.1% in June 2022, is still rocky. The Federal Reserve is looking for that high inflation to be clearly vanquished before cutting its benchmark interest rate, which it has kept at a 22-year high to combat inflation.

The stubborn inflation data complicates the Fed's fight against inflation, and could push back the timetable for potential rate cuts. The central bank is attempting a balancing act with its key interest rate, which influences borrowing costs on all kinds of loans. High rates slow the economy and push down inflation by discouraging borrowing and spending, but risk causing a recession.

Fed officials have said they want to be confident inflation is on a sure path down to a 2% annual rate before cutting the fed funds rate from its current 23-year high, where it's been since July. And concerns about a recession and mass layoffs have faded recently, as U.S. economic output and the labor market have shrugged off high interest rates and defied expectations for a major slowdown.

"This 'super-bad' inflation report for January, along with resilient first-quarter U.S. economic growth, has got to be concerning for the Fed and calls into question market forecasts for aggressive and early rate cuts this year," Scott Anderson, chief U.S. Economist at BMO Capital Markets, wrote in a commentary.

Market expectations that the Fed will start cutting interest rates fell after the release of the CPI numbers. Market participants were pricing in just a 39% chance that the Fed would start cutting rates at its May monetary policy meeting, down from 57% before the release, according to the CME Group's FedWatch tool, which forecasts interest rate movements based on fed fund futures trading data.

"We still see inflation continuing to cool towards the Fed’s target, and expect cuts to start by the midpoint of the year, but today’s data is snapping markets out of their complacency around how quickly the rate cutting cycle might progress," Elyse Ausenbaugh, Global Investment Strategist at J.P. Morgan Global Wealth Management, said in a commentary.

Major U.S. stock indexes were all down more than 1% in late-morning trading Tuesday, while the yield on the 10-year Treasury note jumped to a two month high above 4.25%.

The Biden administration, which has been eager to highlight progress against inflation in recent months, said the worse-than-expected report didn't necessarily indicate inflation was headed in the wrong direction again. Two-thirds of January's inflation came from shelter, and housing cost measures that are more up-to-date than the government's data, such as Zillow's Observed Rent Index, have been showing rent increases slowing down dramatically since 2022. Consumer Price Index data should catch up to that sooner or later, one White House economic advisor said.

"We wouldn't expect disinflation to proceed on a straight line," Daniel Hornung, deputy director of the National Economic Council at the White House, said in an interview. "You'd expect some ups and downs. But I don't think this fundamentally changes the picture about the disinflation we're seeing."

UPDATE: This article has been updated after initial publication to include a chart of price increases in the consumer price index and commentary from an economist, an investment strategist and a White House economic advisor.