CPI: U.S. Consumer Inflation Holds Steady In December

by Ike Obudulu Posted on January 11th, 2019

Washington, D.C., USA: Excluding food and energy, the core consumer price index rose 2.2 percent from a year earlier for a second month and increased 0.2 percent from November, matching the median estimates of economists, according to a Labor Department report Friday. The broader CPI cooled to a 1.9 percent annual gain and was down 0.1 percent from the prior month as energy costs fell the most in almost three years.

A key measure of U.S. inflation, CPI was little changed in December while falling energy prices dragged down the broader gauge, giving the Federal Reserve little urgency to raise interest rates soon as it signals a more cautious approach in 2019.

The data suggest inflation is contained around the Fed’s target, with prices underpinned by steadily rising wages and a tariff war with China. While the central bank last month penciled in two interest-rate hikes in 2019 following four in 2018, officials are now signaling a potential pause through March or longer amid headwinds from trade, the U.S. government’s partial shutdown and global growth risks.

Friday’s report showed shelter costs, which account for one- third of the CPI, rose 0.3 percent for a second month. That reflected 0.2 percent increases in both owners-equivalent rent – – one of the categories designed to track rental prices — and rent of primary residence, while hotel and motel rates advanced the most since May.

Prices for medical care, which make up 8.6 percent of the CPI, rose 0.3 percent from the prior month.

Fed officials have taken a less hawkish tone since the December meeting, when they raised interest rates. In the past week, Chairman Jerome Powell and other officials have stressed that the central bank will be patient and flexible in responding to economic data, including the potential effects of the trade war.

On Thursday, Fed Vice Chairman Richard Clarida said in a speech that “inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back” to the central bank’s goal on a sustainable basis.

December figures for the Fed’s preferred gauge of inflation — a separate measure related to consumption — are scheduled for release on Jan. 31, though the report could be delayed because of the partial government shutdown. The Fed-preferred index and its core gauge tend to run slightly below the Labor Department’s CPI measures.

A separate report on Friday from the Labor Department indicates consumers are gaining more spending power from lower fuel costs. Average hourly earnings, adjusted for inflation, rose 1.1 percent in December from a year earlier, following a 0.8 percent gain in the prior month.

That could support consumer spending, which accounts for about 70 percent of the U.S. economy, at a time when the outlook is dimming for companies in a variety of industries. On Thursday, news from Macy’s and Kohl’s Corp. compounded concerns that rising interest rates and Chinese trade turmoil could dent consumption.

Energy prices fell 3.5 percent from the previous month, the biggest drop since Feb. 2016, as gasoline prices plunged 7.5 percent.

Food costs rose 0.4 percent, the most since May 2014, amid the biggest increase in full-service restaurant prices since 2011.

The report showed used-car prices fell 0.2 percent, the first decline in three months and following two increases of more than 2 percent. New car prices were unchanged for a second month.

Apparel prices were unchanged in December during the crucial holiday-shopping season, reflecting a rise in women’s clothing costs and a decline in men’s wear.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

Labor Department economic releases are proceeding as scheduled, as the agency isn’t part of the partial federal- government shutdown.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The all urban consumer group represents about 93 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired people, as well as urban wage earners and clerical workers.

Not included in the CPI are the spending patterns of people living in rural nonmetropolitan areas, farming families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals.

Consumer inflation for all urban consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that meet two requirements: more than one half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months.

The CPI-W population represents about 29 percent of the total U.S. population and is a subset of the CPI-U population.

The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 5,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments).

All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations.

Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.

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