The 0.3% gain in January matches that of December but exceeds October and November. The year-over-year rate stands at 1.4%.
By Manuel Gutierrez, Consulting Economist to NKBA
Consumer prices rose just 0.3% in January, virtually the same as in the previous month. But despite this modest increase, Figure 1 demonstrates that prices have been accelerating for the last four months.
The expectation is that prices will rise even faster in the future as a result of the government infusion of cash into consumers’ hands without a commensurate increase in production. In other words, more cash chasing fewer goods is a recipe for consumer price increases.
On an annual basis, consumer prices rose 1.4% in January, unchanged from the previous month’s pace (Figure 2). The “core” CPI, which excludes volatile items such as food and energy, and the “all items” price index grew equally in January. However, the core CPI had been modestly falling since the middle of last year, from 1.6% in July to the current 1.4%. At the same time, the overall CPI has moved in the opposite direction, rising from 1.0% in July.
The pandemic and subsequent economic shutdown helped tame inflation. As shown in Figure 2, the CPI dropped significantly around April of last year, when the overall CPI annual increase was down to just 0.1% above the previous year.
Unquestionably, the reduction in demand resulting from the shutdown forced businesses to lower prices and consumers to adjust their purchasing patterns.
This shift favored the purchase of goods at the expense of a pullback from services such as travel and entertainment.
Although government policies aim at price stability, prices of goods and services are continuously in flux, at any given time, some may be rising while others are falling — but very few remain unchanged over time.
As stated earlier, overall prices rose by a modest 0.3% in January, but, as can be seen in the left panel of Figure 3, this is the result of averaging many products with widely different price changes. Among the categories shown in the chart, price changes last month ranged from a high of 3.5% for Energy to a low of minus-5% for Financial Services.
Other categories with significant price increases last month were Windows & Flooring, which rose 3% for the month, and Apparel, which gained 2.2%. This was unexpected, since prices in both of these categories had been falling over the past year.
Similarly, there was wide variation in annual price increases among all products (right panel, Figure 3). Appliances led with a robust annual gain of 5.7% over last year, despite January’s decline of 0.6%. Strong consumer demand for household goods since the pandemic’s start have been a major contributing factor.
Regional Price Inflation
As on a national level, price inflation varies across products and services by geography, as seen in Figure 4. This is no surprise, since housing prices are subject to the same variations.
The lowest price inflation occurred in the Northeast, where prices were up just 1.1% over the last 12 months. The Midwest also enjoyed comparatively low inflation, with its overall CPI rising 1.2%. Meanwhile, the South posted the highest increase, at 1.6%, while the West matched the national average of 1.4%.
Figure 4 also displays long-term price inflation for each of the four regions, as shown by the horizontal dashed line in each graph. Long-term inflation differs by region, with the Midwest posting the lowest rate, at 1.7% while the West is highest at 2.2%. The other two regions are at an even 2% annual rate.
