CPI's 0.4% Gain Is Fueled By Energy; Core Prices Are Unchanged

Pricing power took on a new dimension last month. Despite higher fuel costs, core prices were unchanged, a result not seen since the depths of the recent recession. The overall November CPI matched Consensus expectations and rose 0.4% after an unrevised 0.3% October increase. Other than energy & food prices, however, consumer prices were flat. The last time they were unchanged was December of last year when recessionary forces were gathering steam.

Energy prices jumped 4.1% m/m and have risen 18.7% so far this year. Gasoline prices were quite strong posting a 6.4% (23.6% y/y) increase and rising by more-than-half since December. Fuel oil prices also were firm and rose 7.3% (-7.7% y/y) following a 6.0% gain during October. Finally, prices for natural gas & electricity rose 1.4% (-5.0% y/y) but are down 5.1% this year.

Food & beverage prices posted another modest 0.1% uptick. So far this year, food prices have fallen an unprecedented 0.5%. Recent weakness has been led by lower dairy prices (-9.0% y/y) and lower fruit & vegetable (-4.9% y/y) costs. Prices for meats, poultry, fish & eggs also fell 4.0% y/y while cereals & bakery product prices slipped 0.8%.

Consumer prices less food & energy were unchanged following two months of 0.2% increase. A 0.1% November uptick had been expected. The 1.7% y/y gain has been the annual growth rate of core prices all this year. Core services prices continue to feel the recession's effect and slipped slightly last month. Their 1.3% y/y gain was a record low. Weakness in the housing market accounts for much of that moderation. Last month, shelter prices slipped 0.2% and they've risen a minimal 0.2% so far in 2009. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, slipped for the fourth month in the last five and have risen 0.7% so far this year after a 2.5% increase during 2008. Elsewhere in services, public transportation prices were strong again and posted a 2.6% increase. Recent gains are, however, just making up for declines during the recession. Medical care services prices increased 0.4% (3.5% y/y). Finally, education costs have been firm, up 4.8% y/y after a 5.8% gain during 2008. The annual gain is, however, down from the 6.9% increase during 2004. Recreation prices have really shown the recession's effect and are down 0.2% y/y after a 1.6% 2008 gain.

Despite the weak economy, core goods prices have been relatively firm and last month increased 0.2%. The increase lifted prices 2.8% since December following no change during the prior two years. Higher tobacco prices continued to account for much of the recent strength and rose 1.0% last month (30.3% y/y). New & used motor vehicles also have firmed considerably. The 0.8% increase last month lifted prices by 5.2% since December. That compares with price deflation during the last two years. Working the other way, apparel prices fell for the third month in the last four (1.0% y/y. That follows price declines which extend back to 1994. Continuing weak were prices for household furnishings & operation. They fell another 0.3%, leaving them down 1.1% so far this year. · The chained CPI, which adjusts for shifts in consumption patterns, was unchanged during November and year-to-year prices rose 1.6%. Conversely, chained prices less food and energy edged 0.2% lower last month.

The consumer price data is available in Haver's USECON database while detailed figures can be found in the CPIDATA database.