US Consumer Inflation Moderating in January but Services Prices Still Accelerating

Annual inflation cooled for the seventh straight month to 6.4% in January, however the pace of easing is starting to level off. The prelude to the January CPI report was one of high expectations for the next direction of interest rates and market direction. Fed Swaps showed little change to the expected funds rate in 2023. After the dust settled prices were much the same prior release, the market has a plethora of Fed speakers today which may instigate the next reaction. What we saw m/m was CPI increased 0.5% in January from December, compared with a 0.1% increase the prior month, due in part to rebounding energy and shelter prices. Core CPI rose 5.6% from a year earlier, down from 5.7% in December, Core prices rose 0.4% on the month in January, the same as in December.


It appears the surge in prices is over with supply chains mostly healed. Services inflation is the directional key with consumer demand having shifted back toward services from goods. Lower spending on goods, ongoing improvement in supply chains and falling shipping costs should continue to ease price pressures in coming months. The deflationary pull from improved supply chains will lessen with order now largely restored at US factories and ports. However, there are many possible shifts with the multiple geopolitical powder kegs out there with Russia and China.

A reminder we are coming off June’s 9.1% inflation rate which was the highest in four decades. CPI has moderated after resurging in August with aggressive Fed interest rate rises.

The January data includes annual updates to historical seasonal factors, which affect the one-month price change. Using the new seasonal adjustments, both overall and core inflation cooled less toward the end of 2022 than previously thought.

The new data also reflects an update to the weights of goods and services in the spending basket to capture changes in consumer preference. The Labor Department previously updated these every two years but starting with Tuesday’s release will revise them annually.

US January 2022 Highlights


  • US CPI US CPI (M/M) Jan: 0.5% (est 0.5%; prevR 0.1%)
  • US CPI (Y/Y) Jan: 6.4% (est 6.2%; prev 6.5%)
  • The food index increased 0.5% month-over-month and was up 10.1% year-over-year.
  • The energy index increased 2.0% month-over-month and was up 8.7% year-over-year.
  • The shelter index was up 0.7% month-over-month, with the rent and owners’ equivalent rent indexes both up 0.7%, and was up 7.9% year-over-year, accounting for nearly 60% of the total increase in core-CPI.
  • The used cars and trucks index was down 1.9% month-over-month and was down 11.6% year-over-year.
  • The all items index, less food, energy, and shelter, was up 4.0% year-over-year.
United States Consumer Price Index (CPI)
United States Consumer Price Index (CPI)
United States Inflation Rate
United States Inflation Rate

Services Inflation Still Rising

  • Services inflation was rose further to 7.6% year-on-year in January 2023, the highest since August of 1982, up from 7.5% in the previous month.
  • CPI services excluding rent (note, this isn’t core services ex-housing) saw 3m annualized % gain reaccelerate in January, up to +5.2% vs. +3.1% in December (chart below)
3-month annualized % change for CPI services ex-shelter back down to +1.2%, which is slowest rate since summer 2020 @LizAnnSonders

Core inflation:

  • US CPI Ex Food and Energy (M/M) Jan: 0.4% (est 0.4%; prevR 0.4%)
  • US CPI Ex Food and Energy (Y/Y) Jan: 5.6% (est 5.5%; prev 5.7%)
United States Core Inflation Rate
United States Core Inflation Rate

Real Earnings

  • US Real Avg Hourly Earning (Y/Y) Jan: -1.8% (prevR -1.5%)
  • US Real Avg Weekly Earnings (Y/Y) Jan: -1.5% (prevR -2.6%)

The Fed is likely to want evidence of an inflation slowdown, another 0.50-point rate rise could be on the table at the next meeting as rises “depend on the data we get between now and then.”

Goods Disinflation is Real

Core goods CPI at +1.4% y/y in January while core services continue to rise (now at +7.2% y/y)


Market Reaction (updated at 10:00 AM ET)

After the data official release stocks flew higher as yields and the US dollar fell after further deceleration in inflation, not as big as the previous month but sizeable. Then it all turned around as services inflation became apparent to the market callers. The moves are exaggerated by derivative flow to cover deltas pre option market open.

  • The S&P 500 futures are down 3 points and are trading slightly below fair value.
  • The Nasdaq 100 futures are down 26 points and are trading 0.2% below fair value.
  • The Dow Jones Industrial Average futures are down 5 points and are trading roughly in line with fair value.

U.S. Treasuries sit on their lows after falling in reaction. Equities are on track for a firmly lower start.

Yields After CPI

  • 2-yr: +5 bps to 4.59%
  • 3-yr: +7 bps to 4.28%
  • 5-yr: +5 bps to 3.98%
  • 10-yr: +2 bps to 3.74%
  • 30-yr: -2 bps to 3.78

Yields Before CPI

  • 2-yr: -4 bps to 4.50%
  • 3-yr: -3 bps to 4.18%
  • 5-yr: -5 bps to 3.88%
  • 10-yr: -4 bps to 3.68%
  • 30-yr: -3 bps to 3.76%

In forex the USD is higher with risk off flows on the back of the lower stocks, higher yields, higher dollar.

Monthly Price Increases

  • Consumer prices in the US increased 0.5% month-over-month in January of 2023, the most in three months, and in line with the market forecast.
  • The index for shelter was by far the largest contributor (0.7%), accounting for nearly half of the monthly all-items increase.
  • Followed by food (0.5%), gasoline (2.4%), and natural gas (6.7%).
  • Increases were also seen for prices of motor vehicle insurance (1.4%), recreation (0.5%), and apparel (0.8%). 

Outright deflation for used cars & trucks.

CPI used cars & trucks component continues to tank … as of January, component fell by -11.6% y/y (down in m/m terms as well, -1.9%) @LizAnnSonders


Yearly Price Increases

  • A slowdown was seen in food prices (10.1% vs 10.4%) while cost of used cars and trucks continued to decline (-11.6% vs -8.8%).
  • Cost of shelter increased faster (7.9% vs 7.5%)
  • Energy rose (8.7% vs 7.3%), with gasoline prices rising 1.5%, reversing from a 1.5% decline in December. On the other hand, both fuel oil (27.7% vs 41.5%) and electricity prices slowed (11.9% vs 14.3%).

Shelter Costs Adding to Homeless

Shelter component of CPI had largest m/m increase since July of 1982

Shelter costs, the biggest services’ component and make up about a third of the overall CPI index. Rent of shelter was up the most on record on an annual basis last month, as was owners’ equivalent rent. Rent inflation in the US quickened to 7.9% year-on-year in January 2023, the highest since July of 1982, up from 7.5% in the previous month.

What is unnerving the housing components of the report have a lag between real-time changes in rents and home prices and when those are reflected in Labor Department data.

Rent Inflation

Rent Inflation

Housing Utilities

United States CPI Housing
US CPI Housing Utilities

Many analysts had expected back in March 2022, clearly, they have been mistaken to mark the inflation peak although the war in Ukraine is far from over, supply chain bottlenecks persist, and consumer demand remains elevated which is likely to weigh on the CPI.

The hope was the slowdown back in April was a sign that inflation had probably peaked, the inflation is unlikely to fall to pre-pandemic levels any time soon and will remain above the Fed’s 2% target for a long time as supply disruptions persist and energy and food prices remain elevated.

Food Inflation Persistently High

United States Food Inflation
US CPI Food inflation

Cost of food in the United States increased at a slower 10.1% from a year earlier in January 2023, decelerating from a 10.4% rise in December and a peak of 11.4% in August. It was the lowest reading since May 2022, as prices slowed down further for both food at home (11.3% vs 11.8% in December) and food away from home (8.2% vs 8.3%).

Transportation Inflation Persists

United States CPI Transportation
US CPI Transportation Inflation

The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have been weighing on prices. Since last year many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable.  A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients

“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ

 Source: BLS BLS

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