Inflation exceeded expectations in January, driven by increased costs in food (notably eggs), energy, shelter, used vehicles and motor vehicle insurance. The headline Consumer Price Index (CPI) rose by 0.5% month-over-month and 3% year-over-year. When excluding food and energy, the Core CPI increased by 0.4% month-over-month and 3.3% year-over-year.
What’s the bottom line?
The primary driver behind the persistent inflationary pressure is the shelter component, which makes up a substantial portion of the CPI at 35% of the headline figure and 44% of core CPI. This outsized influence means shelter costs play a crucial role in determining whether inflation continues to make progress lower.
January’s shelter reading of 4.4% year over year is higher than more real-time rental data from sources like Realtor.com, Apartment List, Zillow and CoreLogic of around 1.5% on a blended basis. Although there were indications that shelter costs were starting to align with the lower real-time numbers, January’s reading was unexpectedly high. Once CPI reporting begins to reflect this more real-time data, it may contribute to a decrease in inflation.