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Inflation Observatory

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Headline CPI rose for the first time in five months

Mon, Feb 23 2009, 11:12 GMT
by BBVA Bancomer Team

BBVA Bancomer

• This result was influenced by a rise in energy prices

• Core inflation increased after a period of moderation

• Fed Funds rates are expected to remain unchanged

The positive results are only transitory

Headline consumer prices slightly exceeded our expectations in January by increasing 0.3%, compared to our forecast of 0.2%. The increase was driven by energy prices, which rose by 1.7% in January for the first time in six months. Gasoline prices rose by 5.9%, putting an end to a five month trend of falling prices. In addition, food prices increased 0.1% after remaining unchanged in the previous month. The 0.1% decrease in food at home prices was offset by a 0.3% increase in food away from home. Currently, the average price at the pump was $1.98/gallon for the first three weeks of February, compared to an average price of $1.84/gallon for January. On the other hand, natural gas prices averaged $4.2 in February, against $5.2 in the previous month. This data suggests that energy prices could only see a small change and have limited impact on headline consumer prices for the next month.

In January, core inflation increased by 0.2% after remaining unchanged in December. This was largely influenced by a 0.2% rise in shelter prices after remaining stable in the previous month. The shelter prices were driven by a 0.3% increase in both rent and housing equivalent rent due to a rise in demand. However, we expect future shelter prices to remain fairly stable because the rise in demand will be balanced by a greater vacancy rate due to foreclosures. Core commodities also increased in January by 0.6%, following a three month decline. In addition, the prices of new automobiles increased by 0.2% for the first time in five months. However, given that auto demand is decreasing, the rise in prices and the boost to core inflation are most likely transitory.

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Published on  Mon, Feb 23 2009, 11:15 GMT