January 2024 Inflation Update: Consumer Price Index (CPI) at 3.1%

The Consumer Price Index rose 0.4% compared to a month ago. While it is still lower than the 3.4% in December 2023, it is still higher than most economists expected. The CPI is published by the Bureau of Labor Statistics and the Bureau of Economic Analysis. The Federal Reserve also uses this data to determine interest rate changes and policy. 

Consumer Price Index (CPI) & Core Inflation Rate

The CPI data is a widely followed measure of inflation that tracks the average change in prices paid by urban consumers for a basket of household consumer goods and services. As of the January data, CPI eased to 3.1%, down from 3.4% in December 2023. The Core CPI, which does not include food & energy costs, stayed consistent at 3.9% over the last 12 months. 

Producer Price Index (PPI) – Inflation Measure for Manufactures

This vital measurement tracks the average price change domestic producers receive for their goods and services. It is a leading indicator of consumer inflation, reflecting price pressures that may eventually pass on to consumers. In January, the PPI rose 0.3%, after falling 0.1% in December & November and 0.4% in October.  While the cost of goods decreased by 0.2%, the cost of services increased by 0.6. While it indicates future price increases for the consumer, it is to be seen if the manufacturers and producers will pass the savings down to the consumer level.

Personal Consumption Expenditures (Core PCE)

The PCE price index, also known as consumer spending, is measured by the Bureau of Economic Analysis and the preferred measurement on inflation by the Federal Reserve Bank.  It is another closely watched inflation gauge, excluding volatile food and energy prices. It is considered a preferred measure of inflation by the Federal Reserve as it provides a cleaner signal of underlying inflation trends. As of December, the CPE is down to 2.9% in the 12-month period compared to 3.2% in November.

Oil & Gasoline Prices

Gas prices dropped 1.84% in January. The United States average price of all formulations dropped 6 cents from the December price of $3.257 to the January price of $2.197.  Brent oil prices rose to $81.71 as of January 31, 2024, up from $77.69 in December.  Overall prices are similar to $81.72 in November and $89.08 in October. 

What does this mean for Price Inflation?

The combined numbers may provide complementary insights into what future inflation expectations may be. While the CPI reflects the headline inflation experience of consumers, the CPE excludes volatile components and offers a clearer picture of underlying inflation trends. Conversely, the PPI provides an early indication of price pressures that may eventually translate into higher consumer prices. 

The recent data may have slowed the expectation of a rate cut by the Federal Reserve Chairman Jerome Powell.  While rate cuts in 2024 are still expected, the market is no longer expecting them to happen in March.  Moreover, shelter costs have continued to be persistently high over the past few months and home prices have not fallen due to lack of inventory.