US CPI increases more quickly than expected in January

The cost of living in the US increased by more than expected at the start of 2023, as energy and shelter costs pushed up on headline and core inflation.

According to the Department of Labor, the country's Consumer Price Index rose by 0.5% month-on-month.

That was a tenth of a percentage point more than anticipated by economists in a poll conducted by Dow Jones Newswires.

Food and energy costs jumped by 0.5% and 2.0% on the month, respectively

In comparison to a year earlier, headline CPI was ahead by 6.4%, which was down from an upwardly revised 6.5% for the month before (Preliminary: 6.4%).

At the core level meanwhile, CPI was ahead by 0.4% on the month (consensus: 0.3%) and by 5.6% year-on-year.

In December, core CPI rose by 5.7% in annual terms.

New vehicle prices edged up by just 0.2% and those for used cars and trucks declined by 1.9% when compared with the previous month.

Prices of apparel however rose by 0.8% and those of medical care commodities by 1.1%.

But the biggest driver of inflation at the core level came from 0.7% rise on the month in shelter prices.

Medical care services prices meanwhile fell by 0.7%.

"All told, risks are weighted toward inflation being higher in the first half of this year than we anticipated in the February baseline," said Ryan Sweet, chief US economist at Oxford Economics.

"Still, inflation should moderate more noticeably in the second half of this year as goods disinflation intensifies and services inflation peaks."

For his part, Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed out the slowest month-on-month rise in rent and owners' equivalent rent in three months.

He believed the figures strongly supported his view that the peak ratte of increase had been reached, though the annual rates would continue rising until May due to negative base effects.

Shepherdson also highlighted the downshift in the three-month/three-month services ex-energy and housing component from December's 5.3% clip to 4.5%, which was the slowest pace since January 2022 and he believed that further softening in the next few months was "a decent bet".

"In short, this report won’t change anyone’s mind about the inflation picture; both hawks and doves will find something to highlight."

On the other hand, Mickey Levy at Berenberg Capital Markets told clients: "Taken together, the details of January’s CPI report suggest that although disinflation has taken hold, the process is likely to be a bumpy ride.

"Disinflationary momentum in core goods is moderating and price pressures in the service sector remain elevated, which reaffirms the Fed’s view that returning inflation to 2% will both take time and require the Fed to hold the policy rate at a higher level for longer."