CPI was weak in January despite the spike in commodity prices. The Bloomberg CRB commodities index is up 9.46% year to date. It’s up 24.49% in the past 6 months. Specifically, monthly CPI was 0.3% which met estimates and was 1 tenth above December’s reading (revised from 0.4% to 0.2%). Yearly headline CPI was flat at 1.4% which missed estimates by a tenth. The monthly core CPI was 0% which was the same as last month (1 tenth negative revision) and missed estimates by 2 tenths. Yearly core CPI fell from 1.6% to 1.4% which missed estimates by 2 tenths.

Core CPI prices are only up 0.46% annualized over the last two months, in the bottom 2% of all readings and a huge deceleration from the 3.3% annualized pace over the two months ended September.

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— Bespoke (@bespokeinvest) February 10, 2021

According to this measurement of inflation, The Fed has nothing to worry about. As you can see from the chart above, the 2-month annualized inflation rate is 0.46% which is in the bottom 2% of all readings and down from the 3.3% annualized rate in the 2 months ending in September. Yearly food inflation was 3.8% and energy inflation was 3.6%. Once we start lapping easy comps in March, energy inflation should spike.

Within food, limited-service meals and snacks had 6.2% inflation. This is fast-casual and fast food restaurants like Chipotle and McDonald’s. Energy commodities inflation was -8.8%, with fuel at -16.5%. Within core inflation, core commodities inflation was 1.7% and core services inflation was 1.3%. For a long time, core commodities inflation was low. It’s still not high enough to boost overall inflation.

The highest category in this group is used cars and trucks which saw 10% price increases. When people go back to using public transportation, demand for cars and trucks will fall which will normalize prices. We’ve never seen such a spike in used car demand. It’s not sustainable. Within core services, transportation services prices were down -4.1%. Medical care services inflation was 2.9%. Shelter inflation was 1.6%. Shelter is the biggest category in CPI. It was low because rents have fallen. Home price growth is extremely high, but CPI uses rent prices to impute housing costs for homeowners which doesn’t work well in this unique environment.