December CPI

Updated 18-Jan-07 09:24 ET

About this release

Highlights

December CPI 0.5% (2.5% yoy), core 0.2% (2.6% yoy).

Key Factors

First rise in consumer prices in 4 months. Follows flat growth in Nov after back to back -0.5% declines.
Core rose 0.2% after the flat growth in November -- leaves an 0.1% average gain in Q4, 0.2% in Q3 and 0.3% in Q2.
Core stood at a 2.9% yoy high in September as overall CPI reached a 4.7% yoy high a year earlier (Sep 05).
December energy prices rose 4.6%. Core pressures include housing at 0.4%, apparel at 0.6% and tobacco at 1.5%.
Hot spots remain owners equivalent rent (4.3% yoy), medical care (3.6% yoy) and education (6.3% yoy).

Big Picture

The core rate of consumer inflation reached a decade high of 2.9% yoy in September before easing off to 2.6% yoy to close out the year. The sticky prices for shelter and medicine and tuition will continue to hold firm as flat yoy ex-energy commodity prices provided the recent core easing. Energy prices have provided the drop in overall CPI over the last few months. In the big picture its aggregate demand which provides the price direction as sub-potential (near 3%) growth will eventually ease the core inflation pressures. The Fed more closely watches core PCE prices as an inflation guide which stands at 2.2% yoy. Overall CPI reached a 14 year high of 4.7% yoy in Sept '05 given the push from energy prices and now stand at 2.5% yoy.

Category	Dec	Nov	Oct	Sep	Aug
All Items	0.5%	0.0	-0.5	-0.5	0.2
Food and Beverages	0.0	-0.1	0.3	0.4	0.3
Housing	0.4	0.4	0.0	0.3	0.2
Equivalent Rent	0.3	0.3	0.4	0.3	0.3
Apparel	0.6	-0.3	-0.7	0.6	0.9
Transportation	1.8	-0.9	-3.1	-4.1	0.2
New Vehicles	-0.2	-0.7	-0.1	-0.1	-0.1
Motor Fuel	8.1	-1.6	-11.1	-13.4	0.3
Medical Care	0.1	0.2	0.3	0.3	0.4
Recreation	-0.3	0.1	0.0	0.0	-0.1
Educ and Commun	0.2	-0.2	0.2	0.1	0.3
Other	0.8	0.1	0.3	0.5	0.3
Tobacco	1.5	-0.3	0.1	-0.1	-0.1
Special Indices
Core	0.2%	0.0	0.1	0.2	0.2
Energy	4.6	-0.2	-7.0	-7.2	0.3
Services	0.3	0.3	0.1	0.4	0.3

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Release Details

CPI: Consumer Price Index

Importance (A-F): This release merits a B+.
Source: Bureau of Labor statistics, U.S. Department of Labor.
Release Time: 8:30 ET, about the 13th of each month for the prior month.
Raw Data Available At: http://stats.bls.gov/news.release/cpi.toc.htm.

The Consumer Price Index is a measure of the price level of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator, and it is used to calculate cost of living adjustments for government programs and it is the basis of COLAs for many private labor agreements as well. It has been criticized for overstating inflation, because it does not adjust for substitution effects and because the fixed basket does not reflect price changes in new technology goods which are often declining in price. Despite these criticisms, it remains the benchmark inflation index.

CPI can be greatly influenced in any given month by a movement in volatile food and energy prices. Therefore, it is important to look at CPI excluding food and energy, commonly called the "core rate" of inflation. Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars. In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.