Reflecting on a year of barely changing inflation
Louise Collis, Senior Economist
Peter Bernstein, Chief Economist pbernstein@rcfecon.com, 312-431-1540 x1515
February 12, 2025
The Current Situation
2025 started off on a bad note with the CPI increasing 0.5% in January, raising the 12-month inflation rate to 3.0%. Core prices were up 0.4% and 3.3% for the year. We are no closer, and by some measures, even further from the Fed’s goal of 2% inflation.
Many of the inflation news headlines today include a reference to eggs, which are up 53% for the year. However, they account for only 0.1% of the typical consumer’s budget. There are other categories that give a bigger inflationary push. Motor vehicle insurance (2.8%, or 16 times the weight of eggs) is up 12% for the year. Of course, all of these are overshadowed by an expense that is all but impossible to avoid – shelter.
Shelter makes up 35% of the consumer price index and is up 4.4% for the year. Even if inflation for all other products was half the Fed target, we would still be above 2% inflation overall. And while shelter inflation is slowing, inflation in the non-shelter portion of the CPI has been rising. As recently as August of last year, it was just 1.1%; by January it had doubled to 2.2%. We have still too-high shelter inflation combined with rising non-shelter inflation, a situation that makes the Fed’s 2% target harder and harder to reach.
Today, the BLS also released updated CPI data back to 2020, along with new weights. Most of the adjustments were to seasonal patterns which should reduce some of the see-sawing of month-on-month increases followed by decreases. The tabulations in our Scorecard reflect the new weights.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.04 out of a total index of 100. (Updated weights were released by the BLS today, February 12.)
Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation). In January, 70% of the weighted CPI showed rising or stable inflation – the highest since January of last year. 10% of the index showed deflation.
RCF Inflation Scorecard: January 2025
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%. 70% of the weighted CPI saw a greater than 0.2% price increase in January, a monthly rate that corresponds to the Federal Reserve’s target inflation rate of 2% per year. January seems to be the month for new prices and there is often a jump. It will be interesting to see if February brings the usual stabilization.
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in January was higher or lower than monthly inflation in December. Deflation means prices fell in January vs. December.
Highlights:
- Food at home increased 0.5% in January, driven largely by bacon and eggs (again). Food away from home is up only 0.2%, but up 3.4% for the year.
- Rent and Owners’ equivalent rent both rose 0.3%. Rounding these figures suggest that inflation is stable, but the month-on-month growth for Rent increased from 0.298% in December to 0.347% in January.
- Other sub-categories of housing, such as Household energy and Water, sewer, trash collection are above target for the month.
- New vehicle prices are flat while other vehicle-related categories such as Used cars and trucks, Motor vehicle insurance and Motor vehicle maintenance/repair were all up much more than 0.2% in January. In particular, used car prices have started rising again after a long period of decline.
- Motor fuel is up 1.8% for the month, but down for the year.
- There wasn’t much silver lining in the January report, but Household furnishings and Apparel are down for the month. We have to wait and see if they are affected by newly proposed tariffs.
- With unemployment low and inflation rising, it is hard to see the Fed cutting interest rates any time soon.
