US inflation shows signs of rising cyclical pressure in January

Keith Wade

Keith Wade


Alle Artikel ansehen
Irene Lauro

Irene Lauro


Alle Artikel ansehen

US inflation was higher than expected in January with the headline consumer price index (CPI) rising 0.5% month-on-month compared with expectations of a 0.3% gain. The core rate (CPI excluding food and energy) rose by a more modest 0.3% month-on-month, but this was also ahead of expectations of 0.2%.

These changes left the annual rate of CPI inflation stable at 2.1% year-on-year, but the core ticked up from 1.7% to 1.8%.

High energy prices drive January increase

Higher energy prices account for much of the jump in the headline CPI rate in January with the energy index rising 3% on the month. Within the core, the biggest price rises were in apparel, hospital services and motor insurance.

To better identify the source of inflationary pressure we have broken the index into cyclical and a-cyclical components on the basis of how sensitive they are to economic activity. For example, some items such as shelter (housing) respond to the strength or weakness of the cycle whereas others, such as core commodities (goods), are less affected.

On this basis the rise in core inflation in January was almost evenly split between both categories with the contribution from the a-cyclical components slightly greater. The biggest contributor was core commodities. Prior to this report, the a-cyclical component had been weak and is only just moving into positive territory in year-on-year terms (see chart below).

Meanwhile, the cyclical component, which is running at 2.8% year-on-year, has been building up strength in recent months with successively greater monthly gains.

Core inflation likely to accelerate further

The lags from the economic cycle to inflation are quite long and consequently the recovery in growth over the past year is likely to continue to fuel the cyclical component of inflation in 2018. In the absence of a significant slowdown in growth or weakness in the less cyclical parts of the index, core inflation looks set to accelerate further.

Such a development will encourage the Federal Reserve to keep tightening monetary policy (by way of interest rate rises) through 2018 and, given the fiscal stimulus now being poured into the economy, probably well into next year.

CPI breakdown: cyclical inflation leading the way

Source: Thomson DataStream, Schroder Economics Group, 14 February 2018.

*If a core CPI category shows a positive and statistically significant link with real GDP growth, we categorise the item as procyclical. If it does not satisfy this criterion, we categorise it as a-cyclical.

Past performance is not a guide to future performance and may not be repeated.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.