• Consumer Prices Rose 0.3% MoM and 3.1% YoY
   
• Core CPI Rose 0.4% MoM and Remained at 3.9% YoY
   
• Sharp accelerations in core services inflation

• Further decline in core goods prices

• Sticky US inflation reaffirms Fed caution on rate cuts

US inflation for January came in hotter than expected and did little to give the FOMC the “greater confidence” it needs to start imminently cutting rates.

US CPI rises 0.3% MoM in January, ahead of the consensus forecast calling for a more modest gain of 0.2%. CPI rose 3.1% YoY, down from 3.4% in December. Energy prices fell 0.9% MoM, largely driven by a pullback in prices at the pump (- 3.3% MoM). Meanwhile, food prices (+0.4%) jumped by their largest monthly gain since January 2023. On a year-over-year basis, energy and food price growth both slowed largely as expected, to -4.6% for energy prices and +2.6% (from 2.7% in December) for food prices.

Excluding food & energy, core prices rose 0.4% MoM – also coming in a tick stronger than the consensus forecast. The twelve-month change held steady 3.9%, while the three-month annualized rate of change jumped to 4.0% – the highest reading since June. A 0.4% month-over-month increase in core prices was the largest since May 2023. The pickup came despite a larger-than-expected drop in core goods (-0.3%), fuelled by a 3.4% drop in used autos as well as more modest price declines in apparel (-0.7%), medical goods (-0.6%) and household furnishings (-0.1%).

Core goods prices are now down 0.3% YoY, the first decline since July 2020, led by a steep decline in used vehicle prices (-3.4% MoM). Apparel (-0.7% MoM), medical goods (-0.6% MoM) and households furnishings (-0.1% MoM) also recorded monthly declines in January.

Prices for core services rose 0.7% MoM – a sharp acceleration from the month prior and the largest monthly gain in 16 months. Shelter costs were a standout, rising 0.6% MoM. Some of that strength can be attributed to the volatile lodging away from home category (+1.8%), but owners’ equivalent rent growth perked back up with a 0.6% rise from 0.4% the prior month. Notably, primary rent continued to cool over the month with the 0.4% MoM increase the smallest since the summer of 2021. Non-housing services also sharply accelerated, rising 0.8% MoM – the strongest monthly gain since April 2022. Yet core services inflation was strong in January beyond shelter, with prices also rising 0.6%. Transportation services increased 1.0% thanks to solid monthly hikes in motor vehicle insurance (1.4%), maintenance (+0.8%) and fees (+1.1%), along with a 1.4% rise in airfares. A 0.7% rise in medical care services, the most heavily weighted core category after shelter, also contributed to the hotter than expected print.

But price pressures showed signs of broadening under the surface. Non-energy commodity prices continued to decline, but prices for core services ex-rents – one of the Federal Reserve’s preferred measures of domestically driven inflation surged 0.8% MoM in January.

Source: BIMB Securities Research - 14 Feb 2024