The Consumer Price Index (CPI) Rose 0.1% in January

 
Implications:  Consumer prices increased 0.1% in January, with prices rising in nearly every major category.  Prices for housing, medical care, and food led the index higher in January, partially offset by a decline in the cost of gasoline.  Consumer prices are up 2.5% in the past year, tied for the largest twelve-month increase going back to August of 2018.  Strip out the typically volatile food and energy sectors, and "core" prices rose 0.2% in January.  In addition to housing and medical care, prices for apparel, recreation, education, and airline fares pushed the core reading higher.  Core prices are up 2.3% in the past year, just a tick off the highest annual increase we have seen since the recovery started.  And "core" prices have hovered at or above the Fed's 2% inflation target for twenty-three consecutive months.  Add in employment data continuing to show strength and it makes sense the Fed doesn't expect further rate cuts unless we see a material change in the economic outlook.  On the wage front, average hourly earnings rose 0.2% in January and have increased 3.1% in the past year.  Take out inflation, and "real" earnings rose 0.1% in January and are up a modest 0.6% in the past year.  With the strength of the labor market, we believe earnings will trend higher in 2020.  Healthy consumer balance sheets, a strong job market, inflation in-line with Fed targets, and the continued tail winds from improved tax and regulatory policy, all reinforce our belief that the economy will continue to grow at a healthy pace in the year ahead.  In other news this morning, new claims for unemployment benefits rose 2,000 last week to a very low 205,000.  Continuing claims fell 61,000 to 1.698 million.  These figures are consistent with continued solid payroll growth in February.

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Posted on Thursday, February 13, 2020 @ 10:37 AM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.