| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| CPI - M/M | 0.4% | 0.3% to 0.6% | 0.5% | -0.1% | 0.1% |
| CPI - Y/Y | 6.2% | 6.1% to 6.4% | 6.4% | 6.5% | |
| Ex-Food & Energy- M/M | 0.3% | 0.3% to 0.4% | 0.4% | 0.3% | 0.4% |
| Ex-Food & Energy- Y/Y | 5.5% | 5.4% to 5.5% | 5.6% | 5.7% |
Highlights
Ending the slowing momentum of November and December 2022, January CPI rose 0.5 percent on the month, above expectations. Prices increased 6.4 percent from January 2022, also above expectations. Forecasters in an Econoday survey had expected prices to rise 0.4 percent on the month and 6.2 percent year-over-year. Core inflation, excluding food and energy, was up 0.4 percent in January, the same as in December, and 5.6 percent year-over-year, above estimates of 0.3 percent and 5.5 percent, respectively.
While the monthly acceleration in the headline inflation rate was a set back after slowdowns from 0.5 percent in October, 0.2 percent in November and 0.1 percent in December, 12-month inflation rates actually decreased for both the headline and core indexes. At 6.4 percent, the 12-month rate is at its lowest level since October 2021, and at 5.6 percent, core inflation is the lowest since December 2021.
In January, a 0.7 percent increase in shelter was the largest upward contributor to the monthly CPI gain, accounting for nearly half of the headline index advance. Food, which was up 0.5 percent, and energy, which rebounded 2.0 percent, also boosted monthly prices. Motor vehicle insurance, recreation, apparel, and household furnishings and operations also drove monthly inflation higher, while prices for used cars and trucks, medical care, and airline fares declined.
While the ongoing slowdown in 12-month inflation rate since the summer 2022 peak continued in January, the monthly acceleration reminded that the path to the Federal Reserve's target remains bumpy, especially against the backdrop of robust job creations. Fed policymakers refer to persistent inflation in non-housing services as difficult tame and behind the need to further tighten monetary policy to bring overall inflation sustainably back to the 2 percent target. In January, the CPI for services less rent of shelter is up 0.6 percent month-over-month and up 7.2 percent year-over-year.
While the monthly acceleration in the headline inflation rate was a set back after slowdowns from 0.5 percent in October, 0.2 percent in November and 0.1 percent in December, 12-month inflation rates actually decreased for both the headline and core indexes. At 6.4 percent, the 12-month rate is at its lowest level since October 2021, and at 5.6 percent, core inflation is the lowest since December 2021.
In January, a 0.7 percent increase in shelter was the largest upward contributor to the monthly CPI gain, accounting for nearly half of the headline index advance. Food, which was up 0.5 percent, and energy, which rebounded 2.0 percent, also boosted monthly prices. Motor vehicle insurance, recreation, apparel, and household furnishings and operations also drove monthly inflation higher, while prices for used cars and trucks, medical care, and airline fares declined.
While the ongoing slowdown in 12-month inflation rate since the summer 2022 peak continued in January, the monthly acceleration reminded that the path to the Federal Reserve's target remains bumpy, especially against the backdrop of robust job creations. Fed policymakers refer to persistent inflation in non-housing services as difficult tame and behind the need to further tighten monetary policy to bring overall inflation sustainably back to the 2 percent target. In January, the CPI for services less rent of shelter is up 0.6 percent month-over-month and up 7.2 percent year-over-year.
Market Consensus Before Announcement
January's monthly core rate is expected to hold at December's as-expected and moderate 0.3 percent. Overall prices are expected to rise 0.4 percent to offset December's 0.1 percent decline. Annual rates, at 6.5 percent overall in December and 5.7 percent for the core, are expected to moderate to 6.2 and 5.5 percent.
Definition
The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
Description
The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
