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Economy in Brief

U.S. CPI Fell A Third Month Due To Lower Energy Prices
by Tom Moeller January 16, 2009

According to the Bureau of Labor Statistics, the consumer price index (CPI-U) fell for the third straight month in December. The 0.7% decline followed drops of 1.7% and 1.0% during November and October. Indeed. that, understates the weakness in pricing since there was a less-than-0.1% decline in September. The latest reading lowered the three-month rate of change to -12.7% (AR). That pulled seasonally adjusted prices lower by 0.1% for the last twelve months, the first such decline since 1955. The recent figure compared to Consensus expectations for a 0.9% decline.

Lower energy prices led the weakness in last month's CPI with an 8.3% decline, the fifth consecutive monthly drop.  It was paced by a 17.2% decline in gasoline prices to an average of $1.69 per gallon.  Gas prices have backed up a bit this in January to an average $1.78 last week.  December fuel oil prices fell 9.2% (-14.4% y/y) for their fifth consecutive monthly drop and prices for natural gas & electricity were roughly unchanged m/m (+7.9% y/y).

Increases in food & beverage prices tapered off and posted a slight December decline. That followed moderate increases of 0.3% and 0.2% during the prior two months. However, monthly increases between 0.6% and 0.9% were common earlier in the year. Therefore, the year-to-year growth in food prices during 2008 was the strongest since 1981.

Core pricing power also weakened further in December with the developing recession. The CPI less food & energy slipped and it was down at a 0.3% annual rate during the last three months. It reached a peak three-month rate of increase of 3.5% just this past July and the latest change was the weakest since 1982.

Core goods prices fell for the fourth consecutive month.  The 0.3% decline pulled the three-month rate of change to a negative 3.4% which was the weakest since late-2003. The latest decline was led by another fall in prices of new & used motor vehicles which were off 0.4% (-3.5% y/y).  Apparel prices also fell last month by 0.9% and they dropped 1.0% last year.  Prices for household furnishings & operations ticked up 0.1% after their 0.2% November drop.  However, the 2.0% year-to-year gain was the firmest since 2005.  Tobacco prices rose 0.5% last month and they were up 6.3% during the full year.

Core services prices again ticked up by 0.1% and they rose at a 1.0% annual rate during the last three months. That was the lowest rate of increase since 1982.  Medical care services prices rose a moderate 0.2% (3.0% y/y) but education costs remained strong.  They posted a 0.5% increase (5.6% y/y) during December. Shelter prices were unchanged m/m and the year-to-year gain of 1.9% was the weakest since 2005. As the housing market remained deeply depressed owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose just 0.1% (2.1% y/y).  Public transportation prices fell for the fourth consecutive month and were up just 1.8% year-to-year. Recreation prices fell 0.2% and they rose a modest 1.8% y/y.

The chained CPI, which adjusts for shifts in consumption patterns, fell 1.3%. Less food and energy, chained prices fell 0.3% for the second month and the year-to-year gain of 1.3% was the lowest since early 2004.

Rethinking the Measurement of Household Inflation Expectations: Preliminary Findings from the Federal Reserve Bank of New York is available here.  

Consumer Price Index (%) December November Y/Y  2008 2007 2006
Total  -0.7 -1.7 -0.1 3.8 2.9 3.2
Total less Food & Energy -0.0 0.0 1.7 2.3 2.3 2.5
  Goods less Food & Energy -0.3 -0.2 -0.5 0.1 -0.4 0.2
    Services less Energy 0.1 0.1 2.6 3.1 3.4 3.4
  Energy -8.3 -17.0 -21.9 13.6 5.6 11.0
  Food & Beverages -0.0 0.2 5.8 5.4 3.9 2.3
Chained CPI: Total (NSA)  -1.3 -2.0 -0.5 3.3 2.5 2.9
 Total less Food & Energy  -0.3 -0.3 1.3 2.0 2.0 2.2
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