Senior Economist at UOB Group Alvin Liew gives his views on the latest releases of US inflation figures for the month of January.

Key Takeaways

“US headline consumer price index (CPI) inflation re-accelerated by 0.5% m/m in Jan 2023, exactly in line with Bloomberg’s survey and more importantly, the original 0.1% m/m decline in Dec was eventually revised to a 0.1% m/m increase. Despite the sequential increases, headline inflation in Jan eased off tad lower to 6.4% y/y (from 6.5% y/y in Dec). Core CPI (which excludes food and energy) also rose sequentially in Jan, at 0.4% m/m, same pace as Dec. Despite the m/m increase, core CPI decelerated on a y/y basis slightly to 5.6% (from 5.7% in Dec). This is the smallest y/y rise since Dec 2021.”

“The m/m increase in the shelter cost index was the main inflation driver, accounting for nearly half of the 0.5% m/m overall CPI rise. The indices for gasoline prices, food and utility (piped) gas services (i.e. natural gas) also contributed. And within the core CPI, the shelter cost was the main contributor in Jan, followed by the indices of household furnishings and operations, motor vehicle insurance, recreation, and apparel. From the y/y overall CPI perspective, housing component (which includes shelter and household furnishings and operations) remained the main contributor, accounting for more than half of the y/y increase.”

“US Inflation Outlook – For the full year, we still expect both headline and core inflation to average 3.0% in 2023, above the Fed’s 2% objective. But at the start of this year, they showed that the balance of risk for US inflation remains on the upside as reflected by the persistent rise of food and shelter costs, and that services inflation remains elevated amidst ample demand while the unexpected rebound in goods and energy inflation in Jan gives caution that these factors may continue to play a part in price developments this year.”