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Economy in Brief

U.S. CPI Fell A Record 1.0% and Core Prices Declined As Well
by Tom Moeller November 19, 2008

The consumer price index (CPI-U) fell a record 1.0% last month versus September, according to the Bureau of Labor Statistics. The decline followed a roughly unchanged figure and it about matched Consensus expectations for a 0.8% decline. The latest reading lowered the three-month rate of change to 4.4% (AR).

Lower energy prices accounted for most of the decline in the total as they fell 8.6% from September. The drop was led by a record 14.2% drop in gasoline prices (+12.0% y/y) to an average of $3.05 per gallon. Prices have moved even lower this month to $2.07. Fuel oil prices fell a sharp 8.8% (+21.7% y/y), down for the third straight month. Prices for natural gas & electricity fell just slightly m/m (+9.8% y/y).

Food & beverage prices increased 0.3%, half the September rise and the weakest gain since March. For the bulk of the year, however, food prices have been quite strong. They have posted a 6.1% y/y increase, the fastest since early 1990. September prices for cereals & bakery products and meats, poultry & fish remained firm, each up 0.6%. Year-to-year, they have increased 12.5% y/y and 6.2% y/y, respectively.

The CPI less food & energy fell 0.1%, the first decline since late 1982. Consensus expectations were for a 0.2% increase. The three-month annual rate of increase fell to 1.1% from its July high of 3.5%.

Core goods prices fell by 0.2%, the second consecutive monthly drop. The three-month rate of decline amounted to 1.9%, the weakest since late 2006. The latest decline was led again by lower prices for new & used motor vehicles which were down another 0.7% (-2.3% y/y). Apparel prices also fell by a sharp 1.0% (+0.3% y/y). Apparel prices fell 0.4% last year. Prices for household furnishings & operations were unchanged (+2.0% y/y). Continued strength was seen in tobacco prices which rose 0.4% (7.0% y/y).

Core services prices were unchanged, their weakest performance since 1982. The three-month growth rate eased to 2.2%, the lowest since April. Medical care services prices rose just 0.2% (3.4% y/y) while education costs remained firm and gained another 0.4% (5.9% y/y). Shelter prices were unchanged (+2.2% y/y) as the housing market remained depressed, the weakest y/y gain since mid-2005. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up 0.1% (2.3% y/y). Rents remained firm and rose by 0.4% (3.7% y/y). Public transportation prices fell for the second consecutive month. The 3.3% decline nevertheless left them up 8.4% y/y. Recreation prices ticked 0.1% higher (2.2% y/y).

The chained CPI, which adjusts for shifts in consumption patterns, fell 0.8%. Less food and energy, chained prices ticked up just 0.1%.

Consumer Price Index (%) October September Y/Y  2007 2006 2005
Total  -1.0 -0.1 3.7 2.9 3.2 3.4
Total less Food & Energy -0.1 0.1 2.2 2.3 2.5 2.2
  Goods less Food & Energy -0.4 -0.2 0.1 -0.4 0.2 0.5
    Services less Energy 0.0 0.3 3.0 3.4 3.4 2.8
  Energy -8.6 -1.9 11.6 5.6 11.0 17.0
  Food & Beverages 0.3 0.6 6.1 3.9 2.3 2.5
Chained CPI: Total (NSA)  -0.8 -0.1 3.3 2.5 2.9 2.9
 Total less Food & Energy  0.1 0.2 1.9 2.0 2.2 1.9
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