January CPI Report: What the Experts Are Saying About Inflation

The January CPI report released Tuesday revealed that inflation continued to cool in January, albeit by not quite as much as economists had forecast. 

The CPI report, or Consumer Price Index, for January increased 0.5% on a month-to-month basis after rising 0.1% in December, the Bureau of Labor Statistics (opens in new tab) said. Economists surveyed by Dow Jones (opens in new tab) were looking for the monthly inflation rate to rise 0.4% last month. 

On an annual basis, CPI increased 6.4% in January, down from a rise of 6.5% the previous month. Economists were looking for the annual inflation rate to slow to 6.2% last month. 

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Core CPI, which excludes volatile food and energy prices, increased 0.4% on a monthly basis, up from 0.3% price growth in December. 

The bottom line, experts say, is that inflation is not going away quietly. Rents were the primary culprit for inflation coming in ahead of forecast last month, they note. Meanwhile, consumer prices increased 0.5% in January, the biggest monthly move since October.

Markets gave the CPI report tepid applause, with the major benchmarks reacting to the news with gains. Although the data doesn't support a more dovish rate policy, neither should it cause the Fed to turn more hawkish than it already is on interest rates.

With the January CPI report now a matter of record, we turned to economists, strategists, investment officers and other pros for their thoughts on what the inflation data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

CPI Report: The Experts Weigh In

"This inflation print served as a reminder to investors that the path to lower inflation is not as clear cut as previously thought and it is too early for the Fed to declare victory on inflation. While the economy has experienced meaningful cooling in prices recently, the tight labor market and continued growth in wages also remind us that many pockets of the economy are still strong. Areas within the economy that saw prices slow down in previous months were contributors to keeping inflation up in January. Used-vehicle, apparel, and service prices contributed to elevated core inflation and more expensive gas prices kept headline CPI higher." – Gargi Chaudhuri, head of iShares Investment Strategy, Americas (opens in new tab)

"The January consumer price index release showed that the Federal Reserve still has work to do (opens in new tab) to tame inflation. The 0.5% rise in headline prices and 0.4% increase in core prices during the month were in line with expectations, however they highlight the still high levels of inflationary pressure across the economy to start the year. This report, combined with the much stronger than anticipated January employment report, indicates that the Fed may have to hike rates this year by more than what markets anticipate. Following the CPI release, Treasury futures markets were pricing in two additional 25 basis point [0.25%] rate hikes this year; however, as we saw last year, market expectations can change swiftly, especially if the Fed continues to signal further rate hikes ahead." – Sam Millette, fixed income strategist for Commonwealth Financial Network 

"The adjustments to the CPI weights meant that inflation was revised upwards during last year and thus the year-over-year increase was 6.4% rather than lower as markets were expecting. Still, the year-over-year rate was lower in January, 6.4%, than what it was in December, 6.5%. However, the slowdown in year-over-year inflation decelerated in January and that will probably support our view of the Federal Reserve's (Fed) argument that it is not done raising rates." – Eugenio Alemán, chief economist at Raymond James (opens in new tab)

"The January CPI report adds to doubts that inflation is truly on a path back to the Federal Reserve's target. In conjunction with the blowout jobs report in January, this further augments recent assertions from the FOMC for sustained tightening over the coming spring, increasing the potential of an acceleration in the size of individual hikes as well as the terminal rate. Credit unions should anticipate the fed funds rate clearing 5%, with no rate cuts in 2023." – Curt Long, chief economist, National Association of Federally-Insured Credit Unions (opens in new tab)

"There was more than the usual degree of mystery and intrigue ahead of the January CPI report, given the BLS's reweighting changes (now annually instead of biennially). After the smoke cleared, the report landed largely in line with expectations, with the FOMC hawks and the doves (are there any left?) likely to find something to cheer about. Headline prices rose 0.5%, a big step up from the prior month's upwardly-revised 0.1% advance, partly due to a pop in gasoline and natural gas costs and another meaty rise (0.5%) in food costs. Clothing and vehicle insurance costs also posted outsized gains. The yearly rate edged down just a tenth to 6.4%, though it's well below the four-decade peak of 9.1% set last June. U.S. inflation is grinding lower, but the still elevated pace of core price growth will keep the Fed on track to raise rates at least two more times this year." – Sal Guatieri, senior economist at BMO Capital Markets (opens in new tab)

"The Fed will read this inflation report as supporting their view that further rate increases (plural) are appropriate in 2023. The Fed will almost certainly make another quarter percentage point rate hike at their March decision, but following decisions will depend on the data flow between now and the next scheduled meeting in May. Financial markets currently price in two more quarter percentage point rate hikes this year, in March and May, and possibly a third in June or July." – Bill Adams, chief economist at Comerica Bank (opens in new tab)

"Inflation's not coming down as quickly as we hoped. We got a warning of this on Friday when the December number was revised higher and today's CPI followed a similar path. Shelter remains a nagging issue for the Fed. Last month also had a jump in apparel prices, which may suggest inflation is spreading more than hoped. Today's number doesn't clearly give the bulls a clear reason to keep running in the near term. Animal spirits may need to rest a bit, especially with a long wait until the next dot plot on March 22. Powell said the road to disinflation would be bumpy and this is what he seemed to mean." – David Russell, vice president of market intelligence at TradeStation (opens in new tab)

"While CPI numbers were a bit worse than expected, the stock and bond market is taking the news in stride because it was sequentially lower year-over-year. The market must be looking at the shelter part of the CPI, which came in up 0.7%, and viewing through that number, as there is anecdotal evidence that rents are down year-over-year, which is more a reflection of how they calculate rents with a lag. Therefore, there is some hope that this CPI number, still up over 6% year-over-year, might be a bit overstated. But, we expect the Fed to continue to jawbone negatively and we think a timing difference will continue between the Fed governors and the stock market about how quickly we see inflation come down toward 2%. There is nothing here to derail the rally significantly, because both bulls and bears can believe whatever they want to about the second half. However, data points will have to start breaking more for the bulls by the second half for this rally to last all year." – Rhys Williams, chief strategist at Spouting Rock Asset Management (opens in new tab) 

"Overall a disappointing report where core services are stickier than hoped and proves core forces of inflation aren't wavering near as fast as hoped. With inflation sticky and volatile, we continue to see risks to long term structural and systemic inflation becoming embedded into the system/investor psychology, raising inflation premiums. This isn't a report that gives the Fed any resolve to slow down. Bottom line, if you want inflation to go away, so goes corporate revenues and earnings. For the meantime, nominal growth is way too high!" – John Luke Tyner, portfolio manager at Aptus Capital Advisors (opens in new tab)

"Inflation is not going away quietly. Firmer food inflation and a rebound in energy prices helped boost the headline number. Excluding food and energy, the core CPI increased 0.4% amid a slight pickup in core goods and a solid 0.5% rise in core services prices. Over the past three months, the core CPI rose at a 4.6% annualized pace, an acceleration from the 4.3% run-rate seen over the three-month period ending in December and notably stronger than the 3.1% pace that was originally reported with the December CPI report. In our view, inflation is still set to grind lower, but the process is likely to be bumpy and take time." – Sarah House, senior economist at Wells Fargo Economics (opens in new tab)

"Inflation is like a race between watching grass grow and paint dry, and is a process in time. But the deceleration is intact, even if gradual so far. In the second half of the year when new rental supply coming on stream dwarfs the natural demand by more than a factor of two, watch the service sector component of the CPI slow much more sharply. At the same time, an economy with no vitality outside of the last vestiges of 'excess savings' is going to continue to weigh on the more cyclical components of the index." – David Rosenberg, founder and president of Rosenberg Research (opens in new tab)