Is inflation accelerating or moderating? It depends on whether you consider January’s CPI sequential m/m results (percentage change from December 2022), or the y/y change relative to January 2022. In any case, this is a pivotal question as it relates to prospects for going forward Fed rate hikes, and correspondingly, economic performance.
The BLS recently reported that its all-items CPI-U index increased +6.4% for the 12 months ending January & that this was the smallest 12-month increase since the period ending October 2021. This would be good news except for the fact that January’s sequential m/m increase accelerated to +0.5%, up from +0.1% in December.
However, the BLS further reported that its CPI index for shelter accounted for nearly half of January’s all-items +0.5% m/m increase. This contrasts with Powell’s recent comments that a tight labor market represents the primary driver of inflation currently. Further, we note that Apartment List’s National Rent Index shows that rents have been falling fast over the last couple of months with expectations for flat to modest rent price increases for 2023 (as discussed in this post). Hopefully, the Fed can stick with January’s y/y CPI improvement for now as it formulates its going-forward rate hike strategy.