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02 19 2016 | by Victor Xing | Economics

January CPI: rebound across sectors

January CPI: strong gains across sub-indices

January CPI came in above expectations at 0.0% MoM vs. -0.1% consensus, despite continued weakness of energy prices and dollar strength seen during the month.  The rebound included the import price sensitive goods sector, and OER (rental inflation) continued its steady pace of 0.246% MoM.  Core CPI rose 0.293% MoM vs. 0.1% market consensus (a significant beat).

CPI on a month-over-month basis:

  • Headline CPI: 0.028% MoM vs. -0.110% prior and -0.1% survey
  • Core CPI: 0.293% MoM vs. 0.154% prior and 0.1% consensus
  • OER: 0.246% MoM vs. 0.248% prior
  • Medical care: 0.483% MoM vs. 0.112% prior
  • Apparel (sensitive to China import prices): 0.579% MoM vs. -0.234% prior
  • New vehicles (sensitive to Japan and EU import prices): 0.300% MoM vs. -0.044% prior
January CPI MoM
January CPI MoM

Year-over-year changes:

  • Headline CPI: 1.342% YoY vs. 0.670% prior
  • Core CPI: 2.216% YoY vs. 2.094% prior
  • OER: 3.158% YoY vs. 3.144% prior
  • Medical care: 2.992% YoY vs. 2.567% prior
  • Apparel: -0.627% YoY vs. -0.837% prior
  • New vehicles: 0.613% YoY vs. 0.200% prior
January CPI YoY
January CPI YoY

Policy implications

Federal Reserve officials have taken a “watchful waiting” stance following recent market volatility, uncertainties over China growth (plus PBOC’s exchange rate regime), dollar valuation, as well as the supply-demand imbalances in the oil market.  These elements carry the risk to further disinflation in the U.S., and today’s reading would ease policymakers’ worries that U.S. inflation is in-fact rising despite negative catalysts (which were near their heights over the course of January).

January CPI rose despite declines in oil prices
Crude oil prices declined sharply in January 2016
January CPI came in strong despite strong dollar
Federal Reserve’s Trade Weighted Broad Dollar index reached recent peak in January

Nevertheless, FED officials generally would need additional data points to conclude the formation of a new trend (the famous saying of “3 data points form a trend”), but even slightly stronger optimism over inflation would already serve as a stark contrast vs. market speculation of outright deflation followed by Federal Reserve implementing negative rates, or completely ruling out rate hike for the next 10 months.

Methodology change

The BLS announced a new, non-retroactive change to the way prescription drugs CPI was calculated, and the January data was the first month which the revised formula to take effect.  Nevertheless, prescription drugs CPI is only 1.37% of the aggregate index (according to a BLS official at the time of writing), thus the overall effect on medical care inflation and headline aggregate index should be limited.


  • Change in formula for calculation of index for prescription drugs
    Effective with release of data for January 2016, an arithmetic mean (Laspeyres) formula will replace the geometric mean formula in the calculation of the elementary indexes in the CPI-U, CPI-W, and C-CPI-U for prescription drugs. The Laspeyres formula at the elementary index level is more appropriate for use in categories in which substitution by the consumer in response to price change is difficult or unrealistic. A description of the 1999 adoption of the geometric mean formula for many elementary indexes is available at

Next article02 17 2016 | by Victor Xing | Central Banks

January FOMC minutes: uncertainty and downside risk