The BLS reported today that US headline CPI rose 0.5 percent in January, the highest month-on-month increase since October 2022. This was in line with expectations, but because of seasonal adjustment changes -- we'll get to those -- the year-on-year rate came in a little higher than expected, at 6.4 percent. That is still the lowest year-on-year increase since October 2021, so the TL:DR read on the report is that the gradual downward trend in inflation remains in place.
Some of the sub-components of the index are still running at an eye-watering pace. The "Food at home" (aka groceries) index rose 11.3 percent year-on-year, with many media reports choosing to focus on individual items such as eggs (up 70 percent) and butter (up more than 20 percent). The BLS drew particular attention to the shelter index, which rose 7.9 percent from a year ago and was by far the largest contributor to the rise in the headline figure. It need hardly be said that rising interest rates will make it difficult to move this component lower any time soon.
Indexes of core inflation remain below the headline figure, while continuing to exhibit the same gradual downward trend. CPI ex food and energy rose 0.4 percent in the month, bringing the year-on-year increase to 5.6 percent, the lowest figure recorded since December 2021. The increase in the shelter index accounts for almost 60 percent of the rise in core CPI over the past year.
Now, what about those seasonal adjustment factors? The BLS adjusts these regularly, and today's report included the latest changes. The initially-reported monthly increases for each month of Q4/2022 were reported marginally higher; this explains why the analysts' consensus for a 6.2 percent rise in the headline figure turned out to be too low, even though the consensus for the monthly change was spot-on
Here's the thing about seasonal adjustments, though. If you do them properly -- and I think we can assume the BLS does that -- then over the course of the year they're a wash. Months in which the seasonally adjusted data are higher than the raw numbers are offset by months where the adjusted numbers are lower. The implication of this is that since the seasonal adjustment has now boosted the October-December numbers, there should be some months coming up where the adjustment biases the monthly numbers downward. This should help ensure the downward drift in inflation continues at least until mid-year.
The Fed's job may not be done yet, but there is nothing in today's slightly higher print to suggest that much more monetary tightening is needed.
1 comment:
Hi, thank you for your insightful post. I just had a couple of thoughts and wanted to get your input on that.
1.) MoM CPI is 0.5%. By BLS's own admision, the primary driver of the increase was shelter. Fed has aleady acknowledged that their shelter readings are lagged because they take only continuing leases not new leases. If you take the new leases, which will feed into the continuing leases, according to zillow, it shelter should have been -0.7% instead of +0.7%.
Please refer to below link to compare real time (new leases) vs Fed's lagged (continuing leases)
https://en.macromicro.me/collections/5/us-price-relative/49740/us-cpi-rent-zillow-rent-yoy
2.) Next highest driver was food, which was again driven by a 50% spike in egg prices. Wholesale egg prices are already down 50%, so that was a very temporary spike in food inflation MoM. Please refer to current wholesale prices of eggs:
https://tradingeconomics.com/commodity/eggs-us
I was hoping to get your thoughs on the above two points. Doesn't it look like the actual MoM should have been much lower considering that the two main drivers are really already negative but just showing up wrongly as a positive inflation in the Jan CPI?
Appreciate your thoughts on this. Thank you!
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