The Labor Department issued the monthly report on consumer inflation for January within the past hour, or so, and the report was a mixed bag, with something for both the bulls and the bears to hang their hats on.
Specifically, the headline number was fine, as the Consumer Price Index was unchanged in January, following a similarly unchanged reading the prior month. These results followed a small increase in November and a similar-sized retreat in October. The CPI data followed by 24 hours a relatively benign reading on producer prices, also furnished by the Labor Department.
However, if we back out the volatile food and energy components to get the so-called core rate of consumer price inflation, we find a somewhat different story. To wit, the core CPI gained a greater-than-expected 0.3% last month whereas expectations had been for an increase of just 0.2%. And it is the core CPI that the Federal Reserve typically examines most closely.
Importantly, the larger-than-forecast rise in the core CPI comes just one day after several inflation hawks on the Fed had implied in the FOMC minutes for the bank's last meeting that the Fed's aggressive bond buying program could invite some financial instability if it were to go on indefinitely. One such instability might be an unwanted stepup in inflation. This morning's report, albeit not a major concern, did, at least, put some focus on the pricing situation.
As to the latest CPI report, we find that food prices were unchanged last month, while energy costs fell rather notably, with gasoline costs off by 3.0% in just the one month.
On the other hand, costs were up last month for used cars and trucks, apparel (which surged by 0.8%), shelter, transportation services, and medical care services. The increase in medical care services, however, was just 0.2%. In the past, this has been a worrisome inflation component. Importantly, the 0.2% rise here was the smallest since October, when this variable was up by just 0.1%. The gains in November and December were 0.3% each month.
Overall, the gain in the aggregate CPI was 1.6% for the past 12 months, hardly an indication of evolving inflation. The core CPI was up by just 1.9%, or slightly under the target used by the Fed. That said, the latest stepup in the core CPI will need to be watched for a trend, especially in light of the concerns now being expressed by some on the Fed. Overall, this was a mixed report, as it was not as bad as some of the bears might contend, though not as worry-free as the bulls would imply.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.