US January headline inflation slightly stronger than expectations, core services inflation likely to continue firming in 2016

US headline inflation for January remained flat at 0.0% m/m and accelerated 1.4% y/y, slightly stronger than Barclays' expectations of -0.1% m/m and 1.2% y/y. Core inflation accelerated 0.3% m/m and 2.2% y/y, as compared with Barclays' expectations of 0.1% m/m and 2.1% y/y. Meanwhile, the NSA index level was at 236.916, as compared with the projection of 236.6.

Core and headline inflation in the US have accelerated in the past few months as the direct impact of the 2014 sharp drop in oil prices and strengthening of the US dollar have fallen out, and also as domestic price pressures have carried on increasing with the declining slack in the US economy.

There is a continued sharp fall in energy prices, declining 2.8% m/m and 6.5% y/y in January. Meanwhile, food prices remained the same on the month, as a higher increase in vegetable and fruits prices and a moderate increase in food away from home outweighed falls in other food categories.

Core goods and services posted stronger gains than expectations, with core goods price rising 0.2% m/m in January. The rise in core goods was mainly due to a higher rise in apparel prices, continuing strength in motor vehicle prices and a modest rise in medical care commodities.

However, these monthly rise in prices are not viewed as the beginning of renewed strength in core goods inflation. Apparel, especially, is a volatile sector. This sector is likely to report lower prices throughout 2016 due to weakness in economy outside of the US and dollar appreciation. The increase in motor vehicles prices countered certain weakness in prices in late 2015.

Core services prices accelerated 0.3% on a monthly basis and 3% on a yearly basis. Overall, inflation in core services continues to strengthen slowly and is expected to further firm in 2016.