What did the U.S. CPI report for January reveal about inflation and the Federal Reserve’s position? It indicated that core prices rose by 0.4% month-on-month, exceeding expectations and remaining steady with December’s figures. Headline inflation also slightly surpassed forecasts at 0.3%.
The latest consumer price index (CPI) report for January in the United States stirred the financial sector with its above-consensus readings, noted CIBC. The core prices, excluding volatile food and energy components, ticked up by 0.4% month-on-month, marginally surpassing both prior expectations and the December figures.
In terms of headline inflation, which includes all items, there was a modest exceedance of forecasts at 0.3%. Analyzing the data on a year-over-year basis reveals that core inflation held steady at 3.9%, whereas headline inflation saw a slight decrease to 3.1%, down from 3.4% in December.
A closer look at the components shows core services prices, especially shelter, experienced an uptick, accelerating to 0.7% for the month. On the contrary, core goods prices stayed in deflationary territory, with a drop of 0.3%.
It’s important to note that the January report also includes adjustments such as new seasonal factors and an updated methodology for calculating used car prices, as CIBC pointed out. These changes underscore the complexities and evolving nature of economic analysis.
According to the bank’s interpretation, the report suggests that Federal Reserve Chair Jerome Powell’s wish for more disinflation in the services sector has not yet materialized. However, there appears to be a silver lining within the goods sector, particularly in the used car market, which seems to have potential for further adjustments.
CIBC also reminded that the Federal Reserve prefers to base its policy decisions on the personal consumption expenditures (PCE) price index rather than the CPI. The PCE typically shows a more subdued core number, partly due to different weighting of shelter costs.
The bank concluded that the Federal Reserve’s Federal Open Market Committee (FOMC) would not be entirely satisfied with the latest CPI release. Nevertheless, there is an expectation that the Fed may feel more inclined to ease in the second half of the year, as the goods sector continues to rebalance and the PCE provides a clearer picture of inflationary trends.
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