ab13 February 2024Global Research and Evidence LabUS Economic PerspectivesJanuary CPI recap: Surprising to the upsideHeadline CPI +0.31%: 12-month inflation drops to 3.1%The January CPI showed the headline CPI rising 31bp and 12-month CPI inflation falling from 3.4% in December to 3.1% in today's January report. Despite an upside surprise in today's release, the January CPI increase was notably below the increase a year ago. Food and core prices both rose a very strong 39bp, though energy prices declined by 90bp. Compared to expectations, the 31bp headline CPI increase in January was well above both our expectations and those of consensus (UBS Econ projection 0.08%, UBS Nowcast 0.08%, Bloomberg consensus average 0.16%).Core CPI +0.39%: OER jumps, tenants' rent slowCore CPI prices rose 39bp in January and the 12-month core CPI change held at 3.9% after first moving below 4% last month. Today's print was well above our expectations and those of consensus (UBS Econ projection 0.23%, UBS Nowcast 0.19%, consensus average 0.28%).Among the components, the January increase was held down by a 3.4% decline in used car prices — just below the 3.3% decline in March 2022 for the largest decline in used car prices since the 1960s. New vehicle prices also edged down a slight 4bp. Outside of new and used vehicles, today's report showed strong increases with the core CPI excluding transportation goods rising 52bp — its largest increase since a 53bp increase in February of last year. Owners' equivalent rent (OER, the largest single CPI component) rose a surprisingly strong 56bp — well above the 44bp pace of the past few months and notably above the increase in tenants' rents, which slowed from a 39bp increase in December to 36bp in January. This discrepancy suggests a notable slowdown in OER next month. Additionally, based on new tenant leases we continue to expect rents to slow to close to around a 30bp per month pace within the next few months. Core services excluding rents continued to rise strongly, increasing 85bp in January — its fastest increase in almost two years — as transportation services rose 97bp and personal services increased 95bp. Such increases are likely the result of residual seasonality (i.e. early year price increases coupled with imperfect seasonal adjustment) and we do not expect such strength to continue, though such an effect can often show up in February prices as well. Prices for core goods outside of transportation prices rose a moderate 7bp after strong declines the past two months. Preliminary January core PCE prices +0.30%Based on today’s CPI, we project headline PCE prices rose 25bp and core PCE prices rose 30bp in January. The increase in PCE prices is lower than the CPI due to a lower weight on OER in PCE prices, as well as differences in medical services, motor vehicle insurance, and airf...
