CPI Comes in Lighter Across Select Categories

The latest Consumer Price Index (CPI) report offered some encouraging signs across several segments, easing near-term inflation concerns during what is typically one of the more volatile months for the dataset. Headline CPI increased 0.2% month-over-month (m/m), below consensus estimates of a 0.3% rise. On a year-over-year basis, headline CPI declined to 2.4%, down from 2.7% in the prior month and below market expectations of 2.5%.

Core CPI, however, continues to show some stickiness. Core prices rose 0.3% month-over-month, in line with analyst expectations, while the year-over-year Core CPI reading eased to 2.5% from 2.6% previously. Economic data this week has contributed to increased market volatility, as investors weighed concerns about potential labor market weakness alongside the risk of hotter inflation. However, both datasets suggest that those fears may be subsiding, at least for now. Several components within the CPI report also point to potential downside pressure on inflation in the months ahead.

From a goods perspective, relief in commodity prices contributed to the softer-than-expected headline print. Food at Home, a key measure of goods inflation, rose 0.2% month-over-month—significantly lower than last month’s 0.7% increase. Energy prices acted as a meaningful deflator in January. Gasoline fell 3.2% m/m, fuel oil declined 5.7% m/m, and the broader energy index dropped 1.5% m/m.

Importantly, many of the utility price increases stemming from January’s severe Arctic storm appear to have been largely reflected in this report. Utility prices are expected to act as a deflator in February, barring another historic winter event. The Used Cars and Trucks component also declined meaningfully, falling 1.8% in January. Additionally, the Shelter component, which carries more than a 30% weighting in the CPI calculation, decelerated to a 0.2% month-over-month increase, down from 0.4% in the prior month.

It is worth reiterating that the January CPI report is often one of the most volatile of the year due to annual pricing adjustments in categories such as homeowners’ insurance, auto insurance, and transportation services. One month does not establish a trend, but given the elevated uncertainty heading into this release, Federal Reserve officials may be breathing a cautious sigh of relief—for now.

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