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Economy in Brief

CPI Up More Than Expected: Tobacco & Medical Care Strong
by Tom Moeller February 21, 2007

The consumer price index (CPI-U) rose 0.2% last month. The gain was half the 0.4% increase in December but it greatly exceeded Consensus expectations for no change.

A firm gain in core prices was behind the strength. Prices less food & energy rose 0.3% following three consecutive months of 0.1% increase. Consensus expectations had been for a lesser 0.2% increase.

Core goods prices posted a 0.1% (-0.2% y/y) increase which was the firmest gain since August. The rise was powered by a 3.1% (5.5% y/y) spike in tobacco prices. Apparel prices also rose a relatively firm 0.3% (1.0% y/y) which was the strongest gain since September. Many other goods prices, however, fell. Household furnishings & operations prices fell 0.3% (+0.5% y/y). New & used motor vehicles prices fell 0.2% (-1.4% y/y), down for the sixth straight month but medical care commodities rose 0.6% (2.2% y/y).

Core services prices rose 0.3% as shelter prices increased 0.3% (4.3% y/y) for the second month reflecting a mild 0.2% (4.3% y/y) gain in owner's equivalent rent, the weakest monthly increase in a year. Medical services prices jumped 0.9% (4.9% y/y) but education prices increased just 0.1% (5.8% y/y). Prices for public transportation surged 1.5% (0.7% y/y), the most for any one month since 2004.

Energy prices fell 1.5% (-2.9% y/y) as gasoline prices slipped 3.0% (-2.7% y/y) and heating oil prices dropped 4.4% (-0.7% y/y). Piped gas & electricity prices, however, rose 0.5% (-3.4% y/y).

Food & beverage prices posted a strong 0.7% increase as dairy & related products surged 1.3% (-0.2% y/y) and meats, poultry & fish rose 0.8%% (2.1% y/y).

The chained CPI, which adjusts for shifts in the mix of consumer purchases, rose 0.3% and the chained "core" rose the same 0.3%.

Milton Friedman on Inflation from the Federal Reserve Bank of St. Louis can be found here.

Consumer Price Index January December Y/Y 2006 2005 2004
Total  0.2% 0.4% 2.1% 3.2% 3.4% 2.7%
 Total less Food & Energy 0.3% 0.1% 2.7% 2.5% 2.2% 1.8%
  Goods less Food & Energy 0.1% 0.0% -0.2% 0.2% 0.5% -0.9%
  Services less Energy 0.3% 0.2% 3.8% 3.4% 2.8% 2.8%
 Energy -1.5% 4.2% -2.9% 11.1% 16.9% 10.8%
 Food & Beverages 0.7% -0.1% 2.4% 2.3% 2.4% 3.4%
             
Chained CPI: Total (NSA) 0.3% 0.1% 1.9% 2.9% 2.9% 2.5%
 Total less Food & Energy 0.3% -0.2% 2.3% 2.3% 1.9% 1.7%
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