Originally Published: 14 FEB 23 08:34 ET

Updated: 14 FEB 23 09:12 ET

By Alicia Wallace, CNN

(CNN) -- Inflation surged in January by the most in three months, according to the latest Consumer Price Index, released Tuesday.

Despite the monthly increase of 0.5%, inflation continued to slow on a year-over-year basis to 6.4%, according to the Bureau of Labor Statistics. That's down from December's 6.5% but higher than economists' expectations of 6.2%.

It's the seventh consecutive month that annual inflation has declined.

Monthly prices were largely pushed up by shelter costs, which accounted for nearly half of the increase, the BLS reported. Higher costs for food, gasoline and natural gas also contributed.

On an annual basis, food prices remain well above overall inflation rates: Food-at-home prices are up 11.3%, with egg prices up 70% year on year, according to BLS data.

Taking out food and energy prices, which tend to have more volatility, the core CPI index increased 0.4% from December, matching the monthly gain seen previously, but moderated on an annual basis to 5.6%, from 5.7%.

Consensus estimates called for monthly core growth of 0.4% and year-over-year gains of 5.5%.

While economists were expecting the first report of the year to show inflation continuing to cool, they were also bracing for some uncertainty.

Just 11 days ago, the BLS delivered a shocker of a January employment report that showed the US economy added 517,000 jobs last month and unemployment dipped to a level not seen since May 1969. The monthly job gains could eventually be revised downward, but at nearly three times economists' expectations, that stellar total underscored that bringing down inflation could be a long, drawn-out battle.

Federal Reserve Chair Jerome Powell said as much during an economic discussion last week:

"Our message [at the last meeting] really was this process is likely to take quite a bit of time," he said during a question-and-answer session with David Rubenstein of the Economic Club of Washington DC. "It's not going to be, we don't think, smooth. It's probably going to be bumpy. And so we think that we're going to need to do further rate increases, and we think that we'll need to hold policy at a restrictive level for a period of time."

January's CPI also showed that the services excluding housing index — a closely watched measure by the Fed because of its connection to the labor market — increased 0.6% in January and is up 7.2% over the year.

"The broad-based improvement needed to be seen in order to feel good about where inflation is headed is still lacking," Greg McBride, chief financial analyst for Bankrate, said in a statement Tuesday.

There is nothing to deter the Fed from another quarter-point hike, he added.

"Inflation has shredded household budgets over the past two years, and not just when it comes to one-off discretionary expenses or special occasions, but for keeping up with day-to-day bills," he said.

"Until inflation returns to the 2% neighborhood, pressure on household finances will continue."

This story is developing and will be updated.