Slowing Price Growth Slowed

Consumer price growth slowed to start 2023 but the slow down was less than economists were projecting according to the latest BLS Consumer Price Index.

• Y-O-Y: The Consumer Price Index for All Urban Consumers was up 6.4% to start 2023, this is down slightly from the 6.5% in December and is at the lowest level since October 2021.

• M-O-M: Consumer prices rose 0.5% in January, this was up big from the 0.1% increase reported in December and was the biggest increase since October 2022.

Swing & A Miss. Economists were projecting a bigger slowdown in prices with the headline number falling to 6.2% because of a 0.5% monthly increase.

The Core, The Core, The Core. Core inflation was up 5.6% in January on expectations of a smaller 5.5% increase.

All About Housing. Shelter costs continued to climb with a 0.7% monthly increase. This is down slightly from the 0.8% increase in December pushing the yearly increase to a new high of 7.9%. Shelter costs are by far the biggest contributor to the monthly increase, accounting for almost half the rise.

• Food prices jumped 0.5% from December while the annual rate fell to 10.1%, the lowest level since May 2022.

• Energy prices jumped 2.0% from December pushing the annual rate up to 8.7%

BOTTOM LINE: Inflation continues to slow but at a slower pace than most were expecting. January’s dip month was the smallest decline since September. After the Fed announcement in early February, markets reacted as if the era of higher inflation was over. The jobs report was definitely shock to that economic view. This slowing decline should be another wake up call that inflation is not returning to the target rate anytime soon.

CONOR SEN

Higher Mortgage Rates Is What the Housing Market Needs Now

The strength in the housing market is an unwelcome development in the Federal Reserve’s fight to lower inflation to 2%. Fed Chairman Jerome Powell spoke last year about the need for a “reset” in the housing market. To the extent the Fed’s tweaking of interest rates is meant to help balance the market, the evidence so far in 2023 is that a rate of 6% is too low. To keep the economy from overheating, mortgage rates around 6.5% — their closing level on Friday — get closer to the mark.

Read Sen’s Full Piece at Blomberg