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Brent Meyer |

Economist

Brent Meyer

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

02.26.09

Economic Trends

January Price Statistics

Brent Meyer

The CPI rose at an annualized rate of 3.4 percent in January, reversing course after three consecutive monthly declines and outpacing all of its longer-term trends. Energy prices increased for the first time in six months, rising 22.9 percent (annualized rate), though much of that increase was driven by a rise in motor fuel (up 85.6 percent annualized rate). Household energy prices continued their downtrend (−10.6 percent). The CPI excluding food and energy (core CPI) rose 2.1 percent during the month, compared to an annualized growth rate of 0.9 percent over the three months prior. The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends, the median CPI and the 16 percent trimmed-mean CPI, increased 2.7 percent and 2.0 percent, respectively.

Producer prices reversed course as well, with the Producer Price Index (PPI) rising 10.4 percent (annualized rate) in January after its fifth consecutive decrease. January’s increase was led by a 55.1 percent jump in the prices of energy goods, following a 68.3 percent decrease in December. The PPI excluding food and energy (core PPI) increased 5.0 percent during the month, compared to a 2.9 percent increase in December and a 4.2 percent gain over the past 12 months. Further back on the line of production, core intermediate goods prices continued to decline—albeit at a slower rate—falling 12.2 percent. Core crude goods prices actually posted a slight increase after five consecutive monthly decreases, rising 1.1 percent in January.

January 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
3.4
−8.4
−5.8
0.0
2.7
0.3
  Less food and energy
2.1
0.9
1.0
1.7
2.2
1.8
  Medianb
2.7
2.0
2.4
2.7
2.8
2.9
  16% trimmed meanb
2.0
1.0
1.1
2.5
2.6
2.7
Producer Price Index
  Finished goods
10.4
−13.3
−13.0
3.2
0.2
0.2
  Less food and energy
5.0
2.9
4.0
4.2
2.5
4.3

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

The price-change distribution was about as close to a “normal” distribution that we have seen in quite some time. Only 29 percent of the index (by expenditure weight) exhibited price changes less than 1.0 percent, compared to 48 percent in December. On the other end of the price-change distribution, 47 percent of the index increased at rates exceeding 3.0 percent, much closer to the 10-year average of 44 percent than in December, when only 25 percent of the index rose at rates greater than 3.0 percent.

That said, there were a couple of odd occurrences in this month’s report. The price index for new vehicles increased 3.4 percent after five consecutive decreases. Moreover, leased car and truck prices jumped 29.5 percent in January after being relatively stable for a few months. Also, some apparel prices jumped during the month. Men’s and boy’s apparel prices jumped 20.3 percent, while infants’ and toddlers’apparel prices rose 5.9 percent. These price moves should explain away some of the curious strength that was exhibited in their respective categories in January’s retail sales report.

The longer-term trend (12-month percent change) in the CPI ticked down 0.1 percentage point to 0.0 percent in January, its lowest reading since August of 1995. However, the 12-month growth rate in the median and trimmed-mean measures stand at 2.7 percent and 2.5 percent, respectively. Also, over the past 12 months the core CPI has risen 1.7 percent.

The consensus estimate from the Blue Chip panel of forecasters is for consumer prices to continue to decrease in the first quarter of 2009, though the near-term outlook seems to be relatively uncertain given the 5.9 percentage point disparity between the top-10 average and the bottom-ten average. However, by the beginning of 2010, the consensus estimate is for the CPI to increase at an annualized rate of 1.9 percent, and the difference between the top-10 average and the bottom-10 average shrinks to 2.5 percentage points.