Consumer Prices (Jan.) - Capital Economics
US Economics

Consumer Prices (Jan.)

US Data Response
Written by Andrew Hunter

The fall in core CPI inflation to 1.4% in January, from 1.6%, illustrates that price pressures remain weak, but base effects will drive both core and headline inflation back above 2% over the coming months and there are other reasons to expect monthly price gains to strengthen this year.

Inflation unlikely to remain so subdued for long

  • The fall in core CPI inflation to 1.4% in January, from 1.6%, illustrates that price pressures remain weak, but base effects will drive both core and headline inflation back above 2% over the coming months and there are other reasons to expect monthly price gains to strengthen this year.
  • The 0.3% m/m rise in headline prices, which left CPI inflation unchanged at 1.4%, was largely due to a 7.4% m/m increase in gasoline prices. With crude oil prices continuing to rebound, retail gasoline prices are set to rise further in February. By contrast, food prices rose by only 0.1% m/m, as grocery store prices fell back despite the recent jump in agricultural commodity prices.
  • Core prices were unchanged for the second month in a row, with the annual core inflation rate edging lower and the three-month annualised rate falling to a seven-month low of 1.0%. Used vehicle prices fell by 0.9% m/m despite the recent stability of auction prices, while new vehicle prices also declined. Both moves are at odds with the near-record low levels of auto inventories and the recent strength of sales. Otherwise, prescription drug prices fell again, and shelter costs rose by only 0.1%. Core prices were also held down by renewed weakness in the sectors most directly impacted by recent travel restrictions, with lodging away from home prices falling by 1.9% and airfares down by 3.2%. The only areas where inflationary pressures appear to be picking up are clothing prices, which rose by 2.2%, and medical care services, where a 0.5% rebound ended a run of monthly declines.
  • It isn’t a huge surprise that the recent virus-induced weakness in activity and employment appears to be weighing on inflation but, with virus cases now falling sharply and states easing restrictions, that weakness will soon be reversed. Furthermore, as the big falls in prices last year drop out of the annual change, inflation will pick up sharply in March and April. With growth in unit labour costs surging and a range of survey indicators also pointing to rising price pressures, we still think inflation will be stronger over the rest of this year than most others expect. (See Chart 1.)

Chart 1: NFIB Small Business Price Plans & Core CPI Inflation

Source: Refinitiv

Table: Consumer Prices

All Items

Excl Energy & Food

Energy

Food

Core Goods

Core Services

%m/m

%y/y

%m/m

%y/y

%m/m

%m/m

%m/m

%m/m

Nov

0.2

1.2

0.2

1.6

0.7

0.0

0.0

0.2

Dec

0.2

1.4

0.0

1.6

2.6

0.3

0.1

0.0

Jan

0.3

1.4

0.0

1.4

3.5

0.1

0.1

0.0

Source: BLS


Andrew Hunter, Senior US Economist, andrew.hunter@capitaleconomics.com