U.S. CPI Eases As Expected; Core CPI Increases Steadily

Prices remained under control during 2018. The Consumer Price Index slipped 0.1% in December (+1.9% y/y) following stability in November. It was the first decline in nine months and it matched expectations in the Action Economics Forecast Survey. The CPI excluding food & energy improved an expected 0.2% (2.2% y/y) for the third straight month.

The rise in the "core" CPI reflected a 0.3% increase in services prices which was the largest monthly gain since July. The 2.9% y/y rise moderated, however, from its 3.1% peak this past June. Medical care services prices rose a steady 0.4% m/m, but the y/y gain accelerated to 2.6%. Recreation services costs increased 0.3% (2.3% y/y) after a 0.5% increase. Shelter also costs gained a steady 0.3% (3.2% y/y) as the owners equivalent of primary residences rose 0.2% and a steady 3.2% y/y. Primary shelter rents increased a lessened 0.2% (3.5% y/y). The cost of education & communication ticked 0.1% higher (0.5% y/y) reflecting a 0.2% gain in the cost of college tuition (2.8% y/y). Working lower by 0.2% (+2.8 y/y) were transportation services costs, reflecting a 0.9% drop (-1.7 y/y) in public transportation prices, which was the third consecutive monthly decline.

Goods prices excluding food & energy rose 0.1%, the weakest gain in three months. The 0.1% y/y rise compared positively, however, to price deflation from 2013 until October, 2018. The gain was dominated by a 4.0% strengthening (2.5% y/y) of sporting goods prices which followed declines during most of the economic expansion. Recreation product prices also strengthened 1.3% (1.0% y/y) after several years of decline. Education communication product prices rose 0.7% (-3.3% y/y) after two months of weakness. New vehicle prices held steady (-0.3% y/y) following much larger y/y price declines early last year. Appliance prices eased 0.3% but the y/y price change of +4.7% compared to price deflation during the prior five years. Household furnishings slipped 0.1%, but y/y growth accelerated to 0.9% after sharp price deflation from 2012 to mid-2018. Clothing prices held steady m/m after having fallen moderately since 2015. Counteracting these favorable comparisons was a 0.5% y/y decline in medical care product prices following strong gains during the prior four years.

Food prices rose 0.4% (1.6% y/y) last month as fruit & vegetable costs jumped 1.7% (1.6% y/y). Cereal & bakery product prices rose 0.4% and by an accelerated 1.7% y/y. Meat, poultry and fish prices also rose 0.4% (-0.3% y/y) and egg prices fell 2.9% (-2.2% y/y). Dairy product prices rose 0.3% and continued to be roughly steady as they had been through 2017. Nonalcoholic beverage prices increased 0.3% and by an accelerated 1.4% y/y.

A 3.5% decline in energy product prices was led by an 11.4% drop (+1.9% y/y) in fuel oil prices while the cost of gasoline declined 7.5% (-2.1% y/y). A 5.6% jump in natural gas prices (2.3% y/y) offset these declines while electricity costs rose 0.7% and by an accelerated 1.1% y/y.

The decline in consumer prices was accompanied by a 0.5% increase in real average hourly earnings (1.1% y/y).

The consumer price data can be found in Haver's USECON database with additional detail in CPIDATA. The Action Economics survey figure is in the AS1REPNA database.