U.S. CPI inflation rose in January to 40-year high

Yahoo Finance Live's Brian Cheung breaks down January's Consumer Price Index (CPI) data.

Video Transcript

- More details on these CPI numbers. Brian Cheung is with us right now to talk to us about them. And we talked about the big increases year over year on a month over month basis. We're talking about a 6/10 of a percent increase here. Brian, breakdown the numbers for us.

BRIAN CHEUNG: Yeah, well, the numbers breaking about a half hour ago, so let's unpack on a month over month basis. Prices rising in the United States across the board by 0.6% on a month over month basis. If you index it over a year over year period, 7.5% was the growth that we had seen in the report.

That is well above the Street's estimates of 7.3% and continues to ratchet up the already high reading that we had gotten of 7%, covering the previously reported month of December. Now, on a core basis, even when you strip out those more volatile components of food and energy, you still get a 6% year over year increase in the core figure. But what's more unnerving about this report beyond just the headline number or kind of the components that underlie it, when you take a look at specific parts of the CPI as reported, used cars and trucks, this is something where a number of economists that had hoped inflation would fade later this year would see more of a decline in the price changes.

Instead what we saw was a 1.5% increase still between December and January. Airline fares still up 2.3%. Owners equivalent rent, which is a much stickier component when you consider people getting locked into leases and mortgages in a hot housing market, that up by 0.4%. Not all categories increase, though.

Take a look at some of the travel related expenditures that actually declined, perhaps because of the Omicron variant. Hotels and motels down 4.2%. This is, by the way, on the month over month basis. And then cars and truck rentals down 7%.

So there's something for everyone in this report. But overall, the story very much remains the same. Broad based categories increasing in prices over the course of a December and January, which definitely spells a little bit of an interesting conundrum for the Federal Reserve as they continue to weigh how fast they want to tighten policy. But again, the big headline coming out of the BLS this morning, the highest year over year increase since 1982. By the way, guys, I was when "Physical" by Olivia Newton-John was topping the Billboard charts. So it's been quite some time since then.

- Something good that happened in 1982, definitely. Brian, what this means effectively is that the wage gains that Americans have been seeing are more than erased. In other words, that average hourly earnings, that adjusted average hourly earnings number really stuck out to me, down 1.7%. It's a smaller decline than in December, but still, Americans are effectively taking a pay cut because of this inflation.

BRIAN CHEUNG: Absolutely. And I do want to caveat that by saying that any time you look at an aggregate figure, the lived experience is going to be different depending on what community and what specific household that you're looking at. Because just because you're in an area where you're seeing higher price wage increases, doesn't necessarily mean that's the same place or same geography of the country where you're also going to see any sort of price increases at the store. But what we're seeing is that on an aggregate level, yes, it is indeed part of the picture that if you're taking the wage gains that we see as reported by the monthly numbers in the employment report and then you subtract it by the amount of inflation, which is very high, on a year over year basis, you're probably not making out as good as you're seeing in terms of the nominal amount of increase on your paychecks on a biweekly or monthly basis.

So this is indeed affecting Americans and that's a big reason why this has become such a big political issue. I mean, inflation that clocks in at 2% or 3% usually isn't something to become the kind of cornerstone of a presidential speech. But we've seen Joe Biden talk very frequently lately any time he has the podium about the impact of inflation on Americans. That's because this is becoming a huge and already is becoming a huge political issue for him.

Now, of course, all eyes are not just on the White House and Congress, with an engineer fiscal policy, from the Federal Reserve as well where the extraordinary monetary stimulus has obviously led to some sort of demand push that is leading to inflation that is not fading as fast as Federal Reserve officials had originally hoped or messaged in the beginning of 2021. That's going to be a very interesting story as we get to that mid-March meeting where the Fed is expected to start raising rates. Whether or not this 7.5% print maybe nudges them towards a more aggressive 50 basis point hike, which by the way, we haven't seen since 2000, remains to be seen.

- Yeah and there's a lot of talk about the Fed being behind the ball because of all of this. So we're going to talk more about that in the next hour and weave it into all of our conversations throughout this hour as well. Thank you so much, Brian Cheung.