U.S. Core CPI Accelerates in January on Post‑Holiday Retail Bounce

U.S. inflation continued to accelerate in January, with a 0.349% month-over-month advance in core Consumer Price Index (CPI) inflation (which excludes food and energy prices) – the strongest gain since 2001. We attribute advances in the January print in part to methodological changesand a bounce in retail prices after strong holiday discounting. More broadly, core CPI inflation appears to have bottomed in August, and as expected, we’re seeing some acceleration in 2018. Looking ahead, we now expect core CPI inflation will reach 2.2% year-over-year in 2018, which is slightly higher than what we expected just two months ago.

Retail prices rebound

Core CPI received a strong boost from retail goods prices, which increased 0.62% in January, the largest one-month gain since 2009. The rebound followed heavy holiday discounting in November and December – a trend we’ve observed since 2014, when e-commerce retailers started gaining market share at an accelerating rate. Price gains in apparel were especially firm (at 1.7% month-over-month), and laundry equipment pricing also surged after the recent announcement of tariffs on washing machines.

Used auto prices record a surprise gain

Used auto prices were also firm, increasing 0.4% month-over-month in January, despite reported declines in used car auction prices reported by Manheim and the North American Dealer Association (NADA). However, an update to the Bureau of Labor Statistics (BLS) methodology for computing used auto prices that went into effect for the January report may have introduced some upward bias, and we continue to believe that as hurricane-related auto replacement demand cools, so too should pricing trends.