RBC: Inflation Pressures Broadening Out

Within the January CPI report, RBC sees inflation pressures broadening out away from cars, which have been responsible for a disproportionate share of inflation readings to-date.

• Over half of annual inflation of 7.5% Y/Y can still be attributed to higher gasoline and car prices but price growth also firmed by another 0.6% M/M, similar to the average through 4Q21.
• Importantly, “gains were particularly strong in products outside of those that are transport related, e.g. food, electricity and home rent”. They see this as meaning inflation pressure is “broadening out, away from items like car prices that have driven a disproportionate share of inflation readings to-date”.
• A rebound in oil prices should put a floor under lower gas prices in the near-term.
• By RBC’s calculation, “78% of the consumer basket excluding shelter saw price growth faster than the Fed’s 2% target on average relative to pre-pandemic levels, compared to just under 40% in 2019”.
• Headline inflation is still expected to start plateauing in the coming months on base effects but “disruptions are still significant, and tighter labour markets, rising household demand are both expected to underpin broader price pressure”.