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First Cut: January CPI unchanged on falling energy prices

The month-over-month percent change for the CPI for January was flat for a third month in a row. Compared to a year ago, it was up 1.6%. The underlying pace increase for total CPI slowed further from the 1.9% in December. However, it is entirely due to declines in energy prices.

The core CPI – excluding food and energy – was up 0.2% month-over-month in January for a third month in a row. Food and beverage prices were up a mild 0.2%, but energy prices fell 3.1%, a slightly steeper drop than the price two months. As was the case for November and December, much of it was concentrated in lower prices for gasoline which fell 5.5% (down 5.2% unadjusted).

Shelter costs – which account for about one-third of the CPI basket – were up 0.3% for a third month in January, and up 3.2% compared to a year-ago. Rent and Owners’ equivalent rent were both up 0.3%. Housing costs continue to rise faster and more consistently than other aspects of consumer prices.

The 1.1% month-over-month increase in apparel in January probably reflected the introduction of spring merchandise after the start of winter clearance sales. However, apparel costs were up a scant 0.1% compared to a year ago.

Prices for new motor vehicles were up 0.2% in January, and used cars and trucks were up 0.1%. New motor vehicle prices were flat compared to January 2018, while used vehicle costs were up 1.6% probably due to a scarcity after the natural disasters last fall wiped out some potential supply of trade-ins and resales.

The FOMC will not meet again until March 19-20 and by then will have some of the other delayed data on inflation, including its preferred measure – the PCE deflator. However, in the interim, the CPI suggests that inflation pressures are tame and well within reach of the Fed’s 2% symmetric objective. This is another piece of evidence that the FOMC can remain patient in regard to future short-term interest rate adjustments.

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