Inflation accelerates more than expected in January

The Consumer Price Index (CPI) for January recorded an acceleration of 0.3%, surpassing expectations of 0.2%. This elevated the annual inflation rate to 3.1%, compared to the estimated 2.9% and the 3.4% recorded in December. On the other hand, core CPI inflation, which excludes food and energy, increased by 0.4%, exceeding the forecast of 0.3% and the December figure of 0.3%. In its twelve-month variation, it reached a rate of 3.9% (versus the expected 3.7% and the 3.9% in January).

In the report, the monthly performance of the food component advanced 0.4% (+2.6% annually), highlighted by a 0.5% monthly (+5.1% annually) rebound in food away from home. On the other hand, the energy index declined 0.9% on the month (-4.6% annually), mainly due to a decline in the gasoline component.

Surprisingly, after several months of moderation, the shelter index rebounded in January, registering an increase of 0.6% monthly (+6% annually). It is worth noting that this category contributed more than two-thirds of the monthly increase in the entire CPI. In detail, the rental index increased 0.4% on the month (+6.1% annually), while rent equivalent to owning a home rose 0.6% on the month (+6.2% annually). 

Considering the latest employment and inflation data, it could be thought that the Federal Reserve (FED) will not rush changes in monetary policy, as there is still room for improvement in terms of Core CPI. In this context and after Jerome Powell’s reaffirmation that there will be no cuts in March, conditions and consensus expectations suggest that the first adjustment to the reference rate could take place until the June 12 meeting. As we have previously expressed, with this combination of factors prevailing, it is anticipated that the talk of higher rates will remain until a more pronounced cooling in the economy and/or an improvement especially in the shelter index, which carries specific weight in the cost of living for Americans – is observed.

Change (%) in the last twelve months in CPI and Core CPI

Source: U.S. Bureau of Labor Statistics

CPI monthly change (%)

Source: U.S. Bureau of Labor Statistics

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