Highlights
In January, consumer price inflation made a u-turn, ending three months of decline in the overall index. The headline CPI rebounded 0.3 percent in January, following a 0.8 percent drop the month before. The latest number matched market expectations. Meanwhile, core CPI inflation firmed to 0.2 percent after no change in December. The market had projected a 0.1 percent uptick for January.

Headline inflation was led upward by energy in January. Energy rebounded a monthly 1.7 percent, with gasoline rising 6.0 percent. Food edged up a modest 0.1 percent.

While energy was the obvious culprit behind the boost in headline inflation, there were a number of factors that caused the core rate to firm. Medical care rose 0.4 percent in the latest month—probably a little high compared to trend but a reminder that health care costs are a long-term issue. Some housing costs may have been worsened by the recession and credit crunch. Owners’ equivalent rent rose to 0.3 percent. This subcomponent is imputed and tied to rent costs which may be kept high by reduced ability to move into purchased housing. Finally, it looks like a lot of discounting by retailers took place in December rather than January, meaning on a seasonally adjusted basis, we get a bump in January. Case in point—apparel rebounded 0.3 percent in January after a 0.6 percent fall the month before. The bottom line is that core inflation is probably a little softer than January’s number suggests.

Year-on-year, headline inflation is down 0.2 percent (seasonally adjusted) in January from down 0.1 percent in December while the core is up 1.7 percent, unchanged from December.

The latest CPI report indicates that despite the worsening recession inflation pressures remain. Likely some of this will ease in coming months but today’s report is a reminder that with all of the added liquidity in the credit markets, that as soon as recovery takes place, inflation could return as public enemy number one. Bond yields edged up on today’s report.

Market Consensus before announcement
The consumer price index continued downward in December with the headline CPI falling 0.7 percent in December, following a 1.7 percent decrease in November. Meanwhile, core CPI inflation was unchanged after no change the month before. For the latest month, energy plunged a monthly 8.3 percent, with gasoline prices falling 17.2 percent. Food posted a 0.1 percent decrease. The core was kept soft by several key components. Declines were seen in apparel, new & used vehicles, and lodging away from home. Also, owners' equivalent rent posted a very small gain.

CPI Consensus Forecast for January 09, m/m: +0.3 percent
Range: -0.5 to +0.5 percent

CPI Consensus Forecast for January 09, y/y: -0.2 percent
Range: -1.0 to +0.2 percent

CPI ex food & energy Consensus Forecast for January 09, m/m: +0.1 percent
Range: -0.1 to +0.2 percent

CPI ex food & energy Consensus Forecast for January 09, y/y: +1.5 percent
Range: +1.3 to +1.6 percent

2009 Release Schedule

Released On: 1/16 2/20 3/18 4/15 5/15 6/17 7/15 8/14 9/16 10/15 11/18 12/16 Release For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov