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Brent Meyer |

Economist

Brent Meyer

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

12.22.09

Economic Trends

November Price Statistics

Brent Meyer

The CPI rose 4.9 percent (annualized rate) in November, largely on a sizeable jump in energy prices (up 62.7 percent). However, the core CPI was virtually unchanged, rising just 0.4 percent, following a 2.2 percent increase in October. The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends—the median CPI and 16 percent trimmed-mean CPI—remained soft in November, increasing a slight 0.2 percent and 1.4 percent, respectively. Over the past three months, the median CPI is up a mere 0.6 percent, while the trimmed-mean measure has risen 1.5 percent.

November Price Statistics

  Percent change, last
  1 mo.a  3 mo.a  6 mo.a  12 mo.5 yr.a  2008 average
Consumer Price Index
 All items
4.9
3.4
3.2
1.8
2.5
0.3
 Less food and energy
0.4
1.5
1.5
1.7
2.2
1.8
 Medianb
0.2
0.6
0.8
1.3
2.6
2.9
 16% trimmed meanb
.2
1.5
1.3
1.3
2.4
2.7
Producer Price Index
 Finished goods
24.4
6.3
8.3
2.4
3.0
0.2
 Less food and energy
5.8
−0.7
0.7
1.2
2.2
4.3

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

In the price-change distribution of the underlying components of the CPI, a significant mass of the overall index continues to fall in the lower tail. In November, 45 percent of the consumer market basket (by expenditure weight) exhibited outright price decreases and, over the past three months, that lower tail has held an average of 44 percent of the overall index. For context, in an average month in 2007 just 19 percent of the market basket posted price decreases. Perhaps the most striking pattern in the distribution lately is the absence of mass near the center of the distribution. Only between 1 percent and 4 percent of the components exhibited price changes in this area. In November, just 12 percent of the index earned that distinction, down from 18 percent over the past three months and well beneath the 2007 average of 39 percent.

On the upper end of the price-change distribution, used car prices continued to post double-digit price increases, jumping up 26.7 percent in November. Over the four months since the CARS program came and went, used auto prices have risen a whopping 29.8 percent (their highest growth rate since October 1981).

As expected, rents are still coming in soft, with the rent of primary residence falling 0.9 percent in November, and owner’s equivalent rent (OER) falling 1.5 percent. On a year-over year basis, rents are up less than 0.9 percent, putting both series at (or near) historic lows (note the OER series only goes back to 1982). Generally, rents exhibit relatively low volatility, partly due to the fact that they are surveyed only twice a year, which yields some persistence in the measure.

Looking forward, long-run (5- to 10-year-ahead) average inflation expectations from the University of Michigan’s Survey of Consumer Sentiment have been relatively “well-anchored” over the next 12 months; ranging between 2.9 percent and 3.4 percent. That said, there was an interesting development in the December (preliminary) data. The average expectation ticked down 0.1 percentage point to 3.1 percent in December, while the median long-run expectation fell by 0.4 percentage point to 2.6 percent, suggesting that there may be some sort of “bimodal” expectations by participants. In other words, that pattern may suggest that a majority of survey participants’ expectations are either remaining stable or slipping down slightly, but a smaller group of participants may have intensified their expectations to the upside (something like the so-called “Bill Gates effect” on average local-area income).