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The Line: Inflation Higher than Expected in January

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.



"Just when you thought it was safe to go back in the water." Sorry, thinking about "Jaws" for some reason today, perhaps because we’re still stuck in the jaws of inflation. Bad dad jokes aside, here’s a breakdown of the data.


The consumer price index rose 0.5% in January and is 6.4% higher than a year ago. Depending on which forecasts you look at, that number was either at or slightly above expectations. The monthly increase was the highest since October 2022, while the annual rate is the lowest since October 2021. So, the annual rate of inflation continues to come down—which is good—while prices were up more than expected from December—which is bad.


The biggest driver of inflation continues to be shelter, which accounted for almost half of the monthly increase. Prices were also up sharply last month for energy and food. "Core" inflation—which strips those two items out—rose 0.4% last month, and was 5.6% higher than a year ago. For those who read last week’s column, "supercore" inflation, which also removes shelter, rose 0.36% last month.


You can find the annual increase in prices by item here, and can read the full report from the BLS—one of my former employers—at this link.


We also got the latest on producer prices this week, which rose by a higher-than-expected rate of 0.7% last month and were 6.0% higher than a year ago. The producer price index had declined in December, so January’s increase is definitely a bummer. The increase in "core" PPI was also higher than forecasted.


The bottom line here is, while the annual rate of inflation is headed in the right direction, we still have a long way to go before we can dream of a world where the Fed isn’t hiking rates after every one of their meetings.



Retail Sales Rise at Highest Rate in Almost Two Years


You may be thinking, "Wait, wasn’t there supposed to be a recession coming any minute? If so, how did consumer spending go up last month?" We’ll tackle that question in a minute, but first let’s just cover the facts. Retail sales jumped 3% in January, easily beating the1.9% economists were expecting. Sales rose for every category in the Census Bureau’s report, led by a 7.2% jump in restaurants and bars.


Keep in mind that retail sales are not adjusted for inflation, so part of the monthly, and all the annual increase can be attributed to price increases. If you don’t believe me, go back to the first item and you’ll notice the annual rate of growth in consumer prices is 6.4%. Go on, I’ll wait a second. Guess what the annual growth rate for retail sales was. That’s right, it was also 6.4%, so consumers are spending 6.4% more money than a year ago for the same amount of stuff. Brutal.


I was hoping you’d forget I promised to explain how retail sales rose so much last month, but since you didn’t—or I just reminded you—let’s get after it. First, many are saying the unusually warm weather last month brought more people out to spend money. Some of you may laugh at that one, as you do all your shopping online, but most people don’t. According to the Census Bureau, online sales comprise about 14% of all retail purchases.


Second, social security just gave its highest cost-of-living adjustment in decades—a whopping 8.7% increase. My third reason is the strong labor market. January hiring blew away expectations even after the two strongest years of job growth on record. One final thing to remember is that the Dow Jones estimate was for a 1.9% monthly increase in January retail sales, so economists weren’t expecting a decline last month.


If you don’t believe any of those explanations, then you can just assume it’s a one-month fluke.




Last week, I wrote about the slow return of workers to their Manhattan offices. Many of you probably wondered just how much remote work was costing Manhattan’s economy. So did I; I guess great minds think alike!


The answer is $12.4 billion per year, according to a new study by Stanford University economist Nicholas Bloom’s WFH Research group. How did they figure that out? They’re economists, and economists can do anything!


OK, here’s the actual logic. They figure the average Manhattan worker is spending $4,661 less each year, since they are in the office 30% fewer days. Multiply that by the roughly 2.7 million people that work in Manhattan and you get $12.4 billion a year.


Manhattan had the biggest loss of spending per worker at $4,661, followed by $4,200 in LA and $4,051 in Washington, DC.


Unfortunately, that’s not a statistic where you want to be number one. You can find all the findings of the report at this link.


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