We forecast a 0.30% monthly increase in the consumer price index (CPI) for January. This would be modestly softer than the December increase and would keep the year-ago inflation rate at 2.9%. While we expect some firming in food and energy prices, excluding food and energy core CPI prices should rise a more modest 0.23% in January, basically matching their gains in December. If realized, this value would bring the year-ago core CPI inflation rate to 3.1%, its lowest reading since April 2021. There is some risk that inflation will once again firm to start the year due to residual seasonality, but we think that many of the factors that boosted inflation readings during the first quarter of each of the past two years reflected either idiosyncratic factors or pressures that have since abated to some degree. Looking forward, the year-ago inflation rate could decline more quickly as these earlier strong readings roll out of the year-ago computation. That said, there remains some potential upside risk for consumer goods prices if tariffs are enacted.

For food, we look for a 0.4% rise in January that would be similar to the gains posted last November and September. The most sizable contribution is likely to again come from eggs, as avian flu forces a culling that has sharply boosted prices over the past year. Energy prices should also have risen a solid 0.9% last month, although that would be well below the 2.6% monthly increase for December. Unlike that month, the seasonally adjusted gasoline price index likely eased in January. Instead, household gas service is poised to have jumped last month as a cold spell that extended far south boosted demand.

Outside of food and energy, we look for core to continue to be supported by a 0.3% rise across all the major shelter components last month: owners’ equivalent rent, tenants’ rent and lodging. We continue to expect a fairly gradual — and occasionally choppy — cooling in shelter inflation based on various measures that appear to have some leading properties; our forecasts for January are marginally lower than their December readings. Another key contributor to CPI inflation dynamics since the pandemic has been the prices of new and used vehicles. However, industry data suggest that both should have been close to flat for January. Moderate continued firmness in airfares likely helped to support a 0.7% rise in the public transportation index; if realized it would be the weakest reading in six months outside of November.

Turning to other categories in the CPI, we look for apparel prices to have declined for the first time in three months. A firming trend in the US dollar and the after-effects of some potential earlier front-loading around the risk for port strikes likely put downward pressure on the apparel price index, although we see a risk that tariff uncertainty could have led to front-loading in January that would put upward pressure on prices. We look for the medical care price index to again advance around 0.2%m/m, while communication prices advanced a mild 0.1% last month.