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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

12.18.08

Economic Trends

November Price Statistics

Brent Meyer

The CPI fell further than expected, posting a record decrease of −18.4 percent (annualized rate) in November. As you may have guessed, rapidly falling energy prices (down 89.3 percent at an annualized rate), accounted for a large part of the decrease. Outside of energy prices, there was a rather curious uptick in owners’ equivalent rent (OER)—it increased 3.4 percent in November. OER is basically the implicit rent that the home–owner would pay to rent his or her home. Given the recent economic environment and the outlook for housing services, it seems unlikely that OER would continue to increase that rapidly. Excluding food and energy prices (core CPI), the index was virtually unchanged, ticking up a slight 0.3 percent in November. Over the past three months, the core CPI is only up 0.4 percent. The median CPI actually rose 2.6 percent in November, up from 1.8 percent in October, while the 16 percent trimmed mean was unchanged during the month.

November Price Statistics

    Percent change, last
    1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2007 avg.
Consumer Price Index
  All items
−18.4
−10.2
−1.9
11
2.9
4.2
  Less food and energy
0.3
0.4
1.9
2.0
2.2
2.4
  Medianb
2.6
2.4
3.3
3.1
2.9
3.1
  16% trimmed meanb
0.0
0.2
2.4
2.7
2.6
2.8
Producer Price Index
  Finished goods
−23.5
−19.5
−6.6
0.2
3.6
7.1
  Less food and energy
1.4
3.9
4.4
4.2
2.4
2.1

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor and Bureau of Labor Statistics.

Parsing through the distribution of price changes yields some interesting facts. First, 30 percent of the index (by expenditure weight) exhibited price decreases, down slightly from 33 percent last month. Also, the percentage of the index in the tails of the distribution (<0 or >5) declined to 40 percent from 51 percent in October. Both of those may be very tentative signs that prices are starting to gravitate toward the center of the distribution. However, suppose you take a broad definition of price stability—say a distribution centered on increases in the range of 1 percent and 3 percent. It turns out that just 5 of the 45 components we use in the median calculation, with a combined relative importance value of 7.6 percent, were in that range in November. This figure is down from 17 percent in October and 29 percent if you go back to July.

The longer–term trend (12–month growth rate) in the CPI fell to 1.1 percent in November, compared to 5.6 percent just four months ago. Measures of underlying inflation (core, median, and trimmed–mean CPI measures) all edged down in November and are ranging between 2.0 percent and 3.1 percent.

Just as headline inflation measures have decreased rapidly in the past few months, so have average one-year-ahead inflation expectations. These fell to 1.9 percent in December, from 2.9 percent last month. The longer–term (5–year and 10–year) average inflation expectations decreased 0.4 percentage point to 2.7 percent during the month, a record low (the series goes back to April 1990).