econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 14 September 2017

August 2017 CPI: Year-over-Year Inflation Rate Now 1.9%

Written by Steven Hansen

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.9 % - growing from than last month's 1.7 %. The year-over-year core inflation (excludes energy and food) rate was again unchanged 1.7 %, and is below the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Energy was the driver for the increase in inflation was due to medical costs. Headline and core inflation remain below 2 % year-over-year

The market expected (from Bloomberg / Econoday):

Consensus Range Consensus Actual
CPI-U - month-over-month (MoM) 0.3 % to 0.4 % +0.4 % +0.4%
CPI-U year-over-year (YoY) 1.8 % to 2.1 % +1.9 % +1.9 %
CPI less food & energy (MoM) 0.1 % to 0.2 % +0.2 % +0.2 %
CPI less food & energy (YoY) 1.6 % to 1.8 % +1.8 % +1.7 %

z cpi1.png

As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator.

The major influence on the CPI was again energy prices.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.9 percent.

Increases in the indexes for gasoline and shelter accounted for nearly all of the seasonally adjusted increase in the all items index. The energy index rose 2.8 percent in August as the gasoline index increased 6.3 percent. The shelter index rose 0.5 percent in August with the rent index up 0.4 percent. The food index rose slightly in August, with the index for food away from home increasing and the food at home index declining.

The index for all items less food and energy rose 0.2 percent in August. Along with the shelter index, the indexes for motor vehicle insurance, medical care, and recreation all increased in August. The indexes for airline fares and for used cars and trucks were among those that declined in August.

The all items index rose 1.9 percent for the 12 months ending August, a larger increase than the 1.7 percent increase for the 12 months ending July. The 12-month change in the index for all items less food and energy remained at 1.7 percent for the fourth month in a row. It has remained in the range of 1.6 percent to 2.3 percent since June 2011. The energy index rose 6.4 percent over the past 12 months, and the food index increased 1.1 percent.

Historically, the CPI-U general index tends to correlate over time with the CPI-U's food index. The current situation is putting an upward pressure on the CPI.

CPI-U Index compared to the Food sub-Index of CPI-U

Notice the gap in the above graphic between the CPI and Food - historically this gap has always closed when the knock-on effect from higher food prices into other CPI components moderates.

Recently, medical care too has been accelerating faster than costs in general. The graphs below compare health care to the CPI-U. Note that the rate of growth of healthcare costs is now at the levels seen prior to the introduction of Obamacare.

Month-over-Month Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)

Year-over-Year Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)

The Federal Reserve has argued that energy inflation automatically slows the economy without having to intervene with its monetary policy tools. This is the primary reason the Fed wants to exclude energy from analysis of consumer price increases (the inflation rate).

z cpi2.png

In the above chart - the green boxes are significant elements moderating inflation, while the red boxed items are significant elements fueling inflation.

The graph below looks at the different price changes seen by the BEA in this PCE release versus the BEA's GDP and BLS' Consumer Price Index (CPI).

Year-over-Year Change - PCE's Price Index (blue line) versus CPI-U (red line) versus GDP Deflator (green line)

Caveats on the Use of the Consumer Price Index

Econintersect has performed several tests on this series and finds it fairly representative of price changes (inflation). However, the headline rate is an average - and will not correspond to the price changes seen by any specific person or on a particular subject.

Although the CPI represents the costs of some mythical person. Each of us need to provide a multiplier to the BLS numbers to make this index representative of our individual situation. This mythical person envisioned spending pattern would be approximately:

The average Joe Sixpack budgets to spend his entire paycheck or retirement income - so even small changes have a large impact to a budget.

The graph above demonstrates that fuel costs, medical care, and school costs are increasing at a much faster pace than the headline CPI-U.

The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). Long-term inflation charts reach back to 1872 by adding Warren and Pearson's price index for the earlier years. The spliced series is available at Yale Professor (and Nobel laureate) Robert Shiller's website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.

Click to View

Because of the nuances in determining the month-over-month index values, the year-over-year or annual change in the Consumer Price Index is preferred for comparisons.

Econintersect has analyzed both food and energy showing that food moves synchronously with core.



>>>>> Scroll down to view and make comments <<<<<<



Permanent link to most recent post on this topic

Click here for Historical Releases Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.






Econintersect Economic Releases








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved