| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| CPI - M/M | 0.2% | 0.1% to 0.2% | 0.3% | 0.3% | 0.2% |
| CPI - Y/Y | 3.0% | 2.9% to 3.1% | 3.1% | 3.4% | |
| Ex-Food & Energy- M/M | 0.3% | 0.2% to 0.3% | 0.4% | 0.3% | |
| Ex-Food & Energy- Y/Y | 3.7% | 3.7% to 3.8% | 3.9% | 3.9% |
Highlights
Consumer prices increased more than expected in January, with the headline CPI up 0.3 percent on the month, the largest gain since September 2023, and up 3.1 percent year-over-year, which was still down from 3.4 percent in December. Econoday's median estimates were 0.2 percent and 3.0 percent, respectively. Excluding food and energy, the CPI rose 0.4 percent on the month after 0.3 percent in December, while the 12-month rate remained steady at 3.9 percent, where the consensus was 3.7 percent.
The failure of inflation to slow down as much as expected or at all for the core measure - was a disappointment, albeit in line with a resilient economy and consumer. In fact, Econoday's Relative Performance Index at plus 8 points to a slight outperformance of the economy. All in all, today's data argue for a longer wait before the Federal Reserve starts lowering its policy rate.
Food prices increased 0.4 percent on the month, twice as fast as they did in December, for a 12-month advance of 2.6 percent, the lowest year-over-year increase since July 2021. Energy prices declined for the fourth consecutive month, by 0.9 percent. Energy was down 4.6 percent year-over-year.
Shelter was once again the key culprit for the continued price gains, with a monthly appreciation of 0.6 percent after 0.4 percent in December, explaining more than two thirds of the CPI increase. Still, shelter price gains slowed down to 6.0 percent from 6.2 percent year-over-year, the lowest rate since July 2022. Higher monthly prices for motor vehicle insurance and medical care also put upward pressure. Some offset came from used cars and trucks and apparel in particular, with prices down 3.4 percent and 0.7 percent, respectively.
The failure of inflation to slow down as much as expected or at all for the core measure - was a disappointment, albeit in line with a resilient economy and consumer. In fact, Econoday's Relative Performance Index at plus 8 points to a slight outperformance of the economy. All in all, today's data argue for a longer wait before the Federal Reserve starts lowering its policy rate.
Food prices increased 0.4 percent on the month, twice as fast as they did in December, for a 12-month advance of 2.6 percent, the lowest year-over-year increase since July 2021. Energy prices declined for the fourth consecutive month, by 0.9 percent. Energy was down 4.6 percent year-over-year.
Shelter was once again the key culprit for the continued price gains, with a monthly appreciation of 0.6 percent after 0.4 percent in December, explaining more than two thirds of the CPI increase. Still, shelter price gains slowed down to 6.0 percent from 6.2 percent year-over-year, the lowest rate since July 2022. Higher monthly prices for motor vehicle insurance and medical care also put upward pressure. Some offset came from used cars and trucks and apparel in particular, with prices down 3.4 percent and 0.7 percent, respectively.
Market Consensus Before Announcement
Core prices in January are expected to hold steady for a third month in a row at a monthly increase of 0.3 percent. Overall prices are expected to rise 0.2 percent after increasing 0.3 percent in December which, like the month's core result, was also higher than expected. Annual rates, which in December were 3.4 percent overall and 3.9 percent for the core, are expected to slow to 3.0 and 3.7 percent respectively.
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.
