US: Inflation Hotter than Expected in January


Consumer prices rose 0.6% month-on-month (m / m) in January, in line with the pace of December, and slightly higher than expected by markets. The annual (y / y) rate of inflation ticked higher at 7.5%.

Food and energy prices both rose 0.9% m / m, up 7% and 27% y / y respectively. Within energy a 4.2% m / m increase in electricity costs was the largest contributor. Food prices continued to rise on a solid clip, up 0.5% m / m, and up 6.3% y / y.

Core inflation (e.g. food and energy) was also warmer than expected, jumping 0.6% m / m. As a result, the year-on-year rate of core inflation rose to 6.0%, from 5.5% in December, and the fastest pace in nearly 40 years.

Shield costs were still a key contributor to monthly inflation, but rose less than they did in December (+ 0.3% m / m versus + 0.4% m / m). The prices of used vehicles also continue to rise (+ 1.5% m / m), although the price for new vehicles has remained unchanged. Price pressures for medical care accelerated, increasing 0.7% m / m. The rise in core inflation over the past year has been fairly broad, with almost all components seeing price increases over the past 12 months.

Overall within core inflation, commodity price increases continue to bring the heat, rising 1.0% m / m. Core services also grew a solid 0.4% m / m. Perhaps surprisingly due to the Omicron variant, transportation costs accelerated in January (+ 1.0% m / m).

Key Implications

Inflation hit the top again in January. As discussed in our recent report, higher tariffs will be required to balance demand and supply and lower the temperature of inflation. The Fed is ready to start raising rates in a few short weeks. With inflation continuing to surprise to the top, the rate hike is likely to be faster than expected a few months ago.

We expect the annual rate of inflation to slow from its current high level as supply chains ease and the composition of demand moves away from commodities. However, it is likely to take some time and base year effects will remain unfavorable for the coming months. In the meantime, high price increases are crippling purchasing power and may already be contributing to greater consumer caution.



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