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Supply Chain Problems Still Pushing US Prices Higher In January, But Some Evidence Of Turning – Analysis

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The overall Consumer Price Index (CPI) picture is mixed. Prices are still rising rapidly with supply chain issues which is a huge factor for items like clothes, appliances, and used cars. The positive story is flat prices for cars, price drops for items like beef & TVs, and sharp drops in the rental index suggests a turning point. 

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There is definitely cause for concern here about inflation being more enduring, but these price turns, coupled with the sharp growth in inventories, provide some grounds for optimism. Also, seasonal factors matter. Many companies announced price increases for the new year. These will not likely be repeated in future months.

Both overall and core CPI were up 0.6 percent in January, 7.5 percent and 6.0 percent, respectively, year-over-year.

New car prices were flat, used car prices jumped another 1.5 percent, up 12.2 percent and 40.5 percent year-over-year. Together, they added 1.6 percentage points to the year-over-year inflation, and almost 2.0 percentage points to core rate.

Beef prices fell 1.3 percent in January after a 1.0 percent drop in December, but are still up 16.0 percent year-over-year and more than 22.0 percent from the pre-pandemic level.

Apparel prices are up 1.1 percent for the second consecutive month, 5.3 percent year-over-year. This is mostly shipping costs, since the bulk of apparel is imported and import prices up just over 1.0 percent.

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Restaurant prices continue to trail food at home prices, up 0.7 percent in January, compared to 1.0 percent for home food, up 6.4 percent and 7.4 percent, respectively, year-over-year.

Appliances were up another 1.5 percent in January, 8.5 percent year-over-year.

Television prices fell 1.4 percent for the fifth consecutive monthly decline, largely reversing sharp price rises in the spring and summer. Prices are still up 2.4 percent year-over-year.

Prescription drug prices jumped 1.3 percent in January. Health insurance rose 2.7 percent in the month.

Fees for car rentals fell 7.0 percent in January after dropping 2.7 percent in December, but are still up 29.3 percent year-over-year. This likely reflects the increased supply of cars.

Rental inflation picked up in January, up 0.5 percent in month; 3.8 percent year-over-year for rent proper, 0.4 percent and 4.1 percent year-over-year for owners equivalent rent.

We continue to see a pattern of smaller increases in high-cost areas and large increases in low-cost areas: rents were up just 0.6 percent year-over-year in New York City, 0.5 percent in Washington, DC, and just 0.1 percent in San Francisco. By contrast, rent is up 9.0 percent in Detroit and 8.9 percent in Atlanta year-over-year.

Dean Baker

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.

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