The falling cost of energy and used autos underscored a cooler pace of inflation in the U.S. consumer price index for January, released by the Bureau of Labor Statistics on Friday.
The overall pace of inflation cooled to 2.4% on the year from 2.7% in December even as many businesses used the start of a new calendar year to raise prices and as tariffs continued to have an impact.
The modest overall number was aided by year-ago base effects—or favorable comparisons to the previous January—and methodological choices made by the Bureau of Labor Statistics to account for data not collected during the extended government shutdown last fall.
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It would be premature to declare victory on inflation, though, because of the sharp turn-of-the-year price increases, which businesses often impose at this time of year, and the impact of higher tariffs.
The January data does little to create the conditions for a near-term rate cut by the Federal Reserve nor will it provide any tangible relief for households under duress following five years of inflation.
The data
Inflation increased by 0.2% in the month and by 2.4% from a year ago with the core metric that excludes food and gasoline rising by 0.3% and 2.5%, respectively.
The 1.5% drop in energy prices in January, which was driven by a 3.3% decline in energy commodities and a 3.2% decrease in gasoline prices, were the major reasons that the top-line figure eased.
Still, fuel and utility prices increased by 0.2% in the month and were up by 6.1% from a year ago.
Away from that, one can observe the 0.4% increase in services and services excluding energy, which resulted in an annual increase of 3.2% and 2.9%, respectively.
The policy-sensitive owners’ equivalent rent, shelter and housing categories all saw modest increases of 0.2% in January. They were up by 3.3%, 3.0% and 3.4% on the year, respectively.
Food and beverages were up by 0.2% in January and by 2.8% over the past year while apparel increased by 0.3% and 1.7% over that same period.
Transportation costs declined by 0.3% because of a 1.8% decline in used cars and trucks while new vehicles advanced by 0.1%.
Turn-of-the-year prices can most easily be observed in the 6.5% monthly increase in airfare prices. Other price increases included:
- Alcohol beverages: 0.4%.
- Water, sewer and trash collections: 0.7%.
- Appliances: 0.7%.
- Household equipment and furnishings: 1%.
- Public transportation: 4.0%.
- Hospital-related services: 0.9%.
- Video and audio equipment: 1.6%.
- Information technology and hardware services: 1.1%.
- Miscellaneous personal services: 3.3%.
The takeaway
An unusual mix of methodological decisions made by the BLS to account for data not collected during the government shutdown and base effects from one year ago, in addition to declines in energy costs and used auto prices, combined to dampen top-line inflation.
But once one digs beneath the headline number, one can observe notable turn-of-the-year price increases in goods sensitive to tariffs and services.
In fact, the 0.4% increase in service-sector costs, which comprise approximately 64% of the consumer price index weighting, implies a 3.2% year-ago increase in inflation, which partially accounts for the simmering discontent among the American public on pricing and affordability.
