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Consumer inflation rose slightly in January, driven by increases in the cost of rent and clothing. The consumer price index rose 0.2% following a 0.1% gain the month before, according to the Labor Department. The data indicates that inflation is on a slow course to meet the Fed’s target range of inflation of 2%.

Key Takeaways

• The CPI rose 0.2% vs. 0.1% the month before, and core CPI also rose 0.2%.
• In the 12 months through January, core CPI rose 2.3% as it has done for the previous three months.
• Underlying inflation rose due to rising costs in rent, clothing, healthcare, recreation, airline tickets, and education.

CPI rose 2.5% in the 12 months through January, the largest gain since October 2018. Monthly CPI rose 0.1% last month after rising 0.2% for the three months prior. Growth was held back by falling gasoline prices which saw a 1.6% drop in January after rising 3.1% the month before. Food prices rose 0.2% last month and in December, and food consumed at home rose 0.1%.

Rents paid and received rose 0.3% last month after rising 0.2% for the two months prior. Clothing rose 0.7% after a modest 0.1% increase in December. Healthcare costs rose 0.2% last month and 0.2% the month before. Used vehicle prices fell 1.2% last month and dropped 0.4% the month before, and new vehicles saw no change in price after a 0.1% gain in December.

The latest CPI data points to tame inflation pressure which may gradually lead to the Fed’s target inflation range. The Fed tracks core personal consumption expenditures (PCE) to monitor inflation, and this data is due to be published later in February. Core PCE rose 1.6% annually in December, falling below the target range last year overall. Inflation pressure is likely to remain tame, with moderate wage growth a contributing factor.

CPI inflation +2.5% in last 12 months but the things most people have to buy (rent, healthcare,food) rose even more. Real wage growth is near zero or even negative for most people. https://t.co/jjT5TMAw1Z

— Patrick W. Watson (@PatrickW) February 13, 2020

Fed Chairman Jerome Powell commented on the health of the economy earlier this week, stating that the “economy is in a very good place, performing well,” and adding that central bank officials expect to see slight increases to inflation over the next few months. He added that the coronavirus outbreak in China may pose risks to economic activity. The virus outbreak makes it less that the Fed will raise interest rates in the near future until the ramifications of the outbreak are known.

Market Reaction

Gold has held overnight gains, seeing little reaction to the news of tame inflation pressure or low initial jobless claims released on Thursday. Spot gold last traded at $1,5772.65/oz, up 0.33% with a high of $1,576.73/oz and a low of $1,565.01/oz. Markets are warier overnight following a major increase in reported coronavirus patients, as well as news that the virus has spread to the densely populated city of Tokyo.