January 2019 CPI: Year-Over-Year Inflation Rate Moderates To 1.6%

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.6 % year-over-year (lower than the 1.9 % last month). The year-over-year core inflation (excludes energy and food) rate was unchanged at 2.2 %, and continues to be above the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Energy again was the main driver for the year-over-year decline. Core inflation remains above 2.0 % year-over-year. Medical cost inflation continues to outpace the CPI-U.

The market expected (from Econoday):

  Consensus Range Consensus Actual
CPI-U - month-over-month (MoM) +0.0 % to +0.3 % +0.1 % +0.0 %
CPI-U year-over-year (YoY) +1.3 % to +1.9 % +1.5 % +1.6 %
CPI less food & energy (MoM) +0.2 % to +0.2 % +0.2 % +0.2 %
CPI less food & energy (YoY) +2.0 % to +2.3 % +2.1 % +2.2 %

z cpi1.png

As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as an economic indicator.

The major influence on the CPI was energy.

The all items index increased 1.6 percent for the 12 months ending January, the smallest increase since the period ending June 2017. The index for all items less food and energy rose 2.2 percent over the last 12 months, the same increase as the 12 months ending November and December 2018. The food index rose 1.6 percent over the past year, while the energy index declined 4.8 percent.

Historically, the CPI-U general index tends to correlate over time with the CPI-U's food index. The current situation is putting an upward pressure on the CPI.

CPI-U Index compared to the Food sub-Index of CPI-U

Notice the gap in the above graphic between the CPI and Food - historically this gap has always closed when the knock-on effect from higher food prices into other CPI components moderates.

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