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CPI: No Signs of Cooling, 40+ year Highs
February 10, 2022
Bottom Line: CPI rose even more than expected in January, with the headline and core year-on-year gains hitting levels not seen in 40+ years at 7.5% and 6%, respectively.January was the seventh time core CPI has increased at least 0.5% in the last ten months. Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, rose 0.42%, in line with the recent trend and consistent with its historical lag with home prices. Used cars and trucks jumped again, up 1.5% on the month, as did apparel prices, up 1.1%. Those pandemic-related categories continue to see upside volatility. Medical care services, which had been notable less volatile and mainly on a pre-pandemic trend, saw a surprise jump of about 0.6%, up from the typical monthly pace of 0.3%.
OER historically lags home price moves by over a year, and the acceleration should last through the 2nd Quarter. It rose 5.24% annualized in the three months ended in November vs. 4.4% over the last 12 months and just 2.2% in 2020. Our models suggest that further acceleration is unlikely given the historical relationship.Overall, core inflation pressures will remain significant throughout the 1st Half. While there is scope for the pandemic-related categories to ease in the coming months, there are few signs of that so far. Moreover, the increase in medical care prices bears close watching, especially if the pandemic-related categories don't see easing price pressures.The CPI ROSE by 0.65% in January, compared with market expectations for an increase of 0.40%.
OER historically lags home price moves by over a year, and the acceleration should last through the 2nd Quarter. It rose 5.24% annualized in the three months ended in November vs. 4.4% over the last 12 months and just 2.2% in 2020. Our models suggest that further acceleration is unlikely given the historical relationship.Overall, core inflation pressures will remain significant throughout the 1st Half. While there is scope for the pandemic-related categories to ease in the coming months, there are few signs of that so far. Moreover, the increase in medical care prices bears close watching, especially if the pandemic-related categories don't see easing price pressures.The CPI ROSE by 0.65% in January, compared with market expectations for an increase of 0.40%.
- Food prices increased by 0.88% while energy prices rose by 0.9%. Prices for gasoline fell by 0.8% while prices for fuel oil increased by 3.8%, prices for electricity climbed by 4.2%, but prices for natural gas fell by 0.5%.
- Energy prices are now 27.0% ABOVE their year-ago level.
Overall consumer prices are now 7.5% ABOVE their year-ago level; in January 2021, consumer prices were 1.4% ABOVE their year-ago level.
The Core CPI ROSE by 0.58%, compared with market expectations for an increase of 0.50%.
- Prices for commodities excluding food and energy commodities rose by 1.0%.
- Gains in used cars & trucks (+1.5%), and apparel (+1.1%) led.
- Prices for services excluding energy services rose 0.4% with a moderate increase in transportation (+1.0%), medical care services (+0.6%), and owner's equivalent rent (+0.4%).
Core consumer prices are now 6.0% ABOVE their year-ago level; in January 2021, consumer prices were 1.4% ABOVE their year-ago level.
Article by
Contingent Macro Advisors