The overall CPI rose 0.5 percent in January, while the core rose 0.4 percent. This put the year-over-year increases at 3.0 percent and 3.3 percent, respectively.

The overall CPI outpaced the core because both food and energy inflation were faster than core inflation. The index for store-bought food rose 0.5 percent in January, a sharp increase from the rate of inflation in prior months. Over the year to January, food prices rose just 1.9 percent. We will likely again see a rapid rise in food prices in February.

Energy prices rose 1.1 percent in January, driven largely by a 1.8 percent rise in gas prices. Gas prices have since drifted downward slightly, so we may see a modest decline in the energy index for February.

Food Inflation Continues in February

The food inflation we saw in January is likely to be repeated in February. Egg prices rose 15.2 percent in January, but that was far outpaced by the 44.0 percent rise in the producer price index (PPI) measure. This means we should see another big jump in the egg index in the CPI for February.

However, the price of many other food items also rose rapidly in January. The beef index rose 0.7 percent, while the index for bakery products rose 0.6 percent. The PPI index for beef rose 5.6 percent in January, which suggests another big price rise in the CPI for February. The PPI index for bakery products rose just 0.3 percent in January, so there may be a somewhat better picture there in the February CPI.

Given the sharp rise in prices for many food items in the PPI in January, and in other measures at earlier stages of production, it is likely that we will see the food component rise by at least 0.6 percent in February.

Rental Inflation Continues Its Long Slowing

Both rent indexes came in at just 0.3 percent in January. This puts the year over year inflation rate in the rent proper index at 4.2 percent and the owners equivalent rent index at 4.6 percent. The year-over-year rates peaked in the spring of 2023 at 8.8 percent and 8.1 percent, respectively.

The decline in inflation in the rental indexes should continue. The indexes for units that change hands continue to show near zero inflation, so the CPI rental indexes still have some room to move lower on a monthly basis, and the year-over-year rate should eventually fall below 3.0 percent and possibly as low as 2.0 percent.

There has been a slowing of new apartment construction, which will be a factor pushing rents higher, but it will be some time before that is visible in the CPI. Also, any weakening in the economy will be a factor going in the other direction.

The rental indexes are hugely important for the CPI. They have a combined weight of 33.8 percent in the overall CPI and 42.3 percent in the core index.

New and Used Vehicle Prices

The indexes for new and used vehicle prices have been erratic in recent months. The new vehicle index was flat in January, after rising by 0.5 percent in November and 0.4 percent in December. It had been trending downward earlier in the year. The end of the year rises likely were connected to a surge in purchases as people hoped to beat tariffs.

Used vehicle prices also had been trending downward in the first half of 2024, but have risen sharply in recent months. The index rose 2.2 percent in January.

We will almost certainly see a somewhat smaller price hike for used vehicles in February, and the new vehicle index will be close to flat.

Medical Services Index to Show Modest Rise

The medical services index was flat in January. It was held down by a 0.6 percent decline in the index for dental services and a 0.8 percent price decline for the index for nursing homes. Both of these were likely anomalies that will not be repeated. The hospital services index jumped 0.9 percent in January. That is likely an anomaly on the high side, but the index has generally been rising more rapidly than the overall CPI. We are likely to see the overall medical services index rise by 0.3 percent in February.

Apparel Prices Likely to Rise in February

The apparel index fell 1.6 percent in January after being pretty much flat over the prior year. The monthly index is often erratic, partly due to difficulties in seasonal adjustments. The January fall will almost certainly not be repeated, and we are likely to see a modest rise in February.

Vehicle Insurance Index to Rise Again

There had been some slowing in the inflation in the auto insurance index in the second half of 2024, but the index jumped by 2.0 percent in January. That added 0.06 pp to the month’s inflation rate. Over the last year the index has risen 11.8 percent, adding 0.33 pp to the year over year inflation rate. The index has added over 0.41 pp to the core inflation rate over the last year.

The factors driving insurance costs higher – partly more expensive repairs but also more damage due to climate-related disasters such as fires and flooding – are not going away. We will likely again see a substantial rise in February.

Overall Picture: Modest Slowing in Core Inflation, Another Bad Month for the Overall CPI

We are likely to see a slight slowing in the core inflation rate in February, with weaker rental inflation being the biggest factor. This means the core inflation rate is likely to be 0.3 percent for the month, with the year over year rate dropping to 3.2 percent. The overall inflation rate will again be somewhat higher for the month, with rapid increases in food prices offsetting a modest decline in energy prices. The overall index is likely to come in at 0.4 percent for the month and 3.0 percent for the year-over-year rate.