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Brent Meyer |

Economist

Brent Meyer

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

01.27.09

Economic Trends

December Price Statistics

Brent Meyer

After posting a decline of 8.5 percent (annualized rate) in December, the CPI finished the year up only 0.1 percent on a year-over-year basis, its lowest yearly price appreciation since 1945. This comes just months after the 12–month growth rate of the CPI was running at a 17-year high of 5.6 percent. As expected, plummeting energy prices (namely a 17 percent slide (nonannualized) in gas prices) caused much of the headline decrease in December.

The core CPI was virtually unchanged during the month, falling just 0.2 percent at an annualized rate. Over the past three months, the core CPI has actually decreased 0.3 percent, its first negative growth rate since September 1960. It seems, at least on the surface, that retail prices on many nonessential consumer goods fell in December: Apparel prices decreased 10.7 percent (annualized rate), recreation prices fell 2.4 percent (the largest decrease in a little over nine years), and personal care product prices (toiletries, perfumes, haircuts, and so on) fell 2.1 percent (their steepest decline on record, though this series, in its current form, goes back only to 1999).

December Price Statistics

    Percent change, last
    1 mo.a 3 mo.a 6 mo.a 12 mo. 5 yr.a 2007 avg.
Consumer Price Index
  All items
−8.5
−12.7
−5.4
0.1
2.7
4.2
  Less food and energy
−0.2
−0.3
1.2
1.8
2.2
2.4
  Medianb
0.6
1.6
2.7
2.9
2.8
3.1
  16% trimmed meanb
0.1
−0.2
1.5
2.5
2.6
2.8
Producer Price Index
  Finished goods
−20.7
−24.3
−13.2
−1.2
3.1
7.1
  Less food and energy
2.1
2.9
4.4
4.3
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.

The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends, the median CPI and the 16 percent trimmed mean rose 0.6 percent and 0.1 percent, respectively. This is a much tighter dispersion than during the prior five months. The average absolute difference (since 1983) between the annualized percent change in the median CPI and the 16 percent trimmed-mean measure is about 0.5 percentage point. From July to November, the average absolute difference between the two measures was 2.2 percentage points.

The underlying price distribution shows that more than half of the index (53 percent, by expenditure weight) rose at rates of less than 1.0 percent in December, up a bit from November’s 44 percent, while 34 percent exhibited price decreases in December (up from November’s 30 percent). On the other side of the distribution, just 24 percent of the CPI increased in excess of 3.0 percent in December, down substantially from 49 percent in November.

As mentioned before, the longer-term trend (12-month growth rate) in the CPI plummeted all the way to 0.1 percent during December. Measures of underlying inflation (core, median, and trimmed-mean CPI measures) all ticked down in December and are ranging between 1.8 percent and 2.9 percent.

Given the recent downward momentum in consumer prices, consumer inflation expectations curiously jumped in January (according to the preliminary release by the University of Michigan). One-year-ahead average inflation expectations increased to 2.5 percent, up from a recent low of 1.7 percent in December. Longer-term (5- to 10-year) average inflation expectations, after a brief stint below 3.0 percent last month, spiked up 1.1 percentage points to 3.7 percent in January.