Written by Steven Hansen
According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.2 % year-over-year (unchanged from the reported 1.2 % last month). The year-over-year core inflation (excludes energy and food) rate was also unchanged at 1.6 %.
Analyst Opinion of the Consumer Price Index
There were no major influences for the month-over-month lack of growth for the CPI-U. Medical care services cost inflation changed from 3.2 % to 3.2 % year-over-year.
The market expected (from Econoday):
| Consensus Range | Consensus | Actual | |
| CPI-U – month-over-month (MoM) | 0.0 % to 0.3 % | +0.1 % | +0.2 % |
| CPI-U year-over-year (YoY) | 1.1 % to 1.4 % | +1.1 % | +1.2 % |
| CPI less food & energy (MoM) | 0.1 % to 0.3 % | +0.2 % | +0.2 % |
| CPI less food & energy (YoY) | 1.5 % to 1.8 % | +1.6 % | +1.6 % |
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As a generalization – inflation accelerates as the economy heats up, while the 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 an economic indicator.
There were no major influences on the CPI:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in November on a seasonally adjusted basis after being unchanged in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.
The seasonally adjusted increase in the all items index was broad-based, with no component accounting for more than a quarter of the increase. The food index declined in November, as a decrease in the food at home index more than offset a small increase in the food away from home index. The index for energy rose in November, as increases in indexes for natural gas and electricity more than offset a decline in the index for gasoline.
The index for all items less food and energy increased 0.2 percent in November after being unchanged the prior month. The indexes for lodging away from home, household furnishings and operations, recreation, apparel, airline fares, and motor vehicle insurance all increased in November. The indexes for used cars and trucks, medical care, and new vehicles all declined over the month.
The all items index rose 1.2 percent for the 12 months ending November, the same increase as for the period ending October. The index for all items less food and energy rose 1.6 percent over the last 12 months, also the same increase as the period ending October. The food index rose 3.7 percent over the last 12 months, while the energy index fell 9.4 percent.
Historically, the CPI-U general index tends to correlate over time with the CPI-U’s food index. The current situation is putting 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.
The graphs below compare health care to the CPI-U.
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 the analysis of consumer price increases (the inflation rate).
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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 needs to provide a multiplier to the BLS numbers to make this index representative of our individual situation.
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 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.
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 the core.
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