CPI: Energy Prices Decline, Core Inflation Rises

Bottom Line: Headline consumer inflation was unchanged in January, better than expectations due to no change in food prices and modestly lower energy prices. Consumer prices are now 1.3% above their year ago level. Meanwhile, core consumer prices rose moderately and are 2.2% above their year ago level. Owners' Equivalent Rent (a major component of CPI that is an estimate of the cost of shelter) rose by 0.25%, 3.2% year-over-year and has moved by 50 bps over the past year. Overall inflationary pressures at the consumer level are now rising modestly compared to year-ago levels. The CPI was UNCHANGED by 0.0% in January, compared with market expectations for a decline of 0.1%. Food prices were unchanged while energy prices declined by 2.8%. Prices for gasoline dropped by 4.8% while prices for fuel oil declined by 5.7%, prices for electricity slipped by 0.7%, and prices for natural gas fell by 0.6%. Energy prices are now 6.5% BELOW their year ago level. Overall consumer prices are now 1.3% ABOVE their year ago level; in January 2015, consumer prices were 0.2% BELOW their year ago level. The Core CPI ROSE by 0.3%, compared with market expectations for an increase of 0.2%. Prices for commodities excluding food and energy commodities rose by 0.2%. Gains were in apparel (+0.6%), alcoholic beverages (+0.5%), medical care (+0.4%), new vehicles (+0.3%), tobacco (+0.2%), used cars & trucks (+0.1%). Prices for services excluding energy services rose 0.3% with moderate increases in medical care services (+0.5%), transportation (+0.4%), and shelter (+0.3%). Core consumer prices are now 2.2% ABOVE their year ago level; in January 2015, consumer prices were 1.6% ABOVE their year ago level.