Please stop telling me there is no inflation

The January CPI saw no change at the headline level and a .2% core rate of increase which brings the y/o/y increases to 1.6% and 2.2% respectively. This is in line with expectations. Another decline in oil prices kept a lid on the headline figure. Food prices were up .2% m/o/m and 1.6% y/o/y.

In what continues to be the case, services inflation ex energy remains persistent as it grew by .2% m/o/m and 2.8% y/o/y. Please stop telling me there is no inflation. Rents and medical care continue to mostly drive this. Rent of Primary Residence was higher by .3% m/o/m and 3.4% y/o/y. OER, the understated measure of housing inflation, was also up .3% and 3.2% y/o/y. A 2.4% y/o/y increase in medical care services was partially offset by a decline in medical care commodities and drugs, both prescription and nonprescription. Overall, medical care costs rose .2% m/o/m and 1.9% y/o/y.

Other important price increases for things that are important to the average family, tuition and childcare costs rose 2.8%. College tuition and fees were higher by 2.9%, elementary and high school tuition was up by 4.4%. For those sports fans, ticket prices jumped by 7% y/o/y. For those that drive, insurance prices rose 3.4%. In direct response to tariffs, laundry equipment prices were up 7.2% y/o/y. On the other hand, if you fly a lot, airline fares fell by 2.8% y/o/y.

Of note in January, we finally saw an increase in goods prices ex food and fuel. They jumped by .4% m/o/m and actually brings the y/o/y gain to .3%. Higher prices for apparel was the main reason as they jumped by 1.1%. New and used car prices were up .2% and .1% m/o/m respectively. Tariffs and high transportation costs are lending support to higher core goods prices.

Bottom line, the core rate of inflation is now up .2% a month for 5 straight months. The Fed shouldn’t breathe easy just yet. If you watch the PCE instead, remember the biggest component, medical care, is mostly price fixed.

Inflation expectations in the TIPS market jumped 2 bps immediately after the in line print. The 10 yr breakeven is at 1.86%, one bp from a two month high.

INTRADAY CHART IN 10 YR BREAKEVEN’s