Announced this morning, the headline Consumer Price Index (CPI) increased 0.3% in January, slightly higher than expected and grew 3.1% on an annual basis. Monthly prices for Energy Services, including Electricity, up 1.2%, and Utility (piped) Gas Service, up 2.0%, were relatively strong, while monthly prices for Used Cars and Trucks, down -3.4%, were relatively weak. Prices for Shelter, up 0.6%, were higher than the previous month. The core rate, which excludes prices for food and energy, increased 0.4% in January, more than expected, and grew 3.9% on an annual basis, which is the same as the annualized figure the previous month.
Overall, stronger than expected increases in the headline and core CPI measures in January. Headline levels continue trending lower, but the core rate has the same annualized figure as the previous month and remains above the Federal Reserve’s 2% annual target. The increase in shelter prices is notable, given it is characterized as a service, versus a good, and it has a decent weighting in the CPI. In addition, the labor market remains resilient as evidenced by last week’s strong report. As a result, the Federal Reserve may be inclined to keep current interest rate levels in place for the time being to confirm with more clarity that inflation moves closer to their target. How consumers and the economy react to higher rates for longer will be key for the markets in the coming weeks.
In all, the 10-year US treasury yield ticks higher following the report and equity futures are lower as we head into the market open.
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