Consumer Price Index (BLS)

US price expectations followed a seasonal pattern in January, with CPI rising 0.5% month-over-month and 3.0% year-over-year. The increase was largely driven by shelter costs, which accounted for nearly 30% of the overall rise, and higher transportation services costs, particularly motor vehicle insurance. Used car prices also contributed, reversing prior declines. Despite this, core price expectations ex-shelter remain just above 2% annually.

Interpretation

Like last year, January’s CPI came in above expectations, exceeding them in almost every conceivable way, starting with food and energy prices. Grocery prices rose 0.5%, with eggs standing out due to a sharp 15.2% jump—the largest since 2015. Restaurant prices increased more modestly, up 0.2%. Year-over-year, total food price expectations stood at 2.5%, with grocery prices rising 1.9%. Energy costs increased 1.1% in January, driven by a statistical 1.8% increase in gasoline and natural gas prices. However, on a 12-month basis, energy price expectations remain contained at just 1.0%, with gasoline prices still slightly lower than a year ago.

Core CPI, which excludes food and energy, rose 0.4% in January and 3.3% year-over-year, with transportation services and shelter continuing to exert upward pressure. However, the overall composition of the increase suggests a largely seasonal effect rather than a fundamental shift in price dynamics. While medical care and airline fares saw price increases, categories such as apparel and household furnishings declined, providing some offset.

Despite the January rise, the underlying price outlook remains stable. Excluding shelter, the annualized rate remains only slightly above 2%, reinforcing the view that broader price pressures are not accelerating meaningfully.

Additionally, the turnaround in used car prices suggest that some of the recent “disinflationary” pressures in durable goods may be fading, which could complicate the pace of future price stabilization. Nonetheless, with wage growth cooling and demand steady rather than surging, there are still signs that price expectations are unlikely to reaccelerate meaningfully in the near term.

The Federal Reserve is likely to see this report as consistent with its “disinflation” narrative, though the persistence of shelter costs remains a key challenge for policymakers. If housing costs moderate further in the coming months, core price expectations could ease closer to the Fed’s target, supporting the FOMC’s case for rate cuts later in the year.