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Brent Meyer |

Economist

Brent Meyer

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

01.28.10

Economic Trends

December Price Statistics

Brent Meyer

The CPI rose at an annualized rate of 1.6 percent in December, as both food and energy prices posted modest increases. Over the past 12 months, the CPI has risen 2.7 percent. The core CPI rose 1.4 percent in December and is up a mere 1.3 percent over the past three months, somewhat of a downward trend compared to a still-modest 1.8 percent over the past year. Measures of underlying inflation trends produced by the Federal Reserve Bank of Cleveland, the median and the 16 percent trimmed-mean CPI, rose 0.6 percent and 1.1 percent, respectively, in December, consistent with recent softness seen over the past six months or so. Also, there is little evidence of pricing pressure feeding through from producer prices, as the core PPI was flat in December and has been holding to a virtually flat trend over the past six months.

December 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
1.6
3.3
2.9
2.7
2.6
0.3
 Less food and energy
1.4
1.3
1.3
1.8
2.2
1.8
 Medianb
0.6
0.7
0.9
1.2
2.6
2.9
 16% trimmed meanb
1.1
1.4
1.2
1.3
2.4
2.7
Producer Price Index
 Finished goods
2.0
9.5
5.0
4.4
3.2
0.2
 Less food and energy
0.0
−0.5
−0.1
0.9
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 December, the bulk of the consumer market basket (by expenditure weight) continued to reside on the low end of the distribution, as 40 percent of the overall index posted outright price decreases and 23 percent rose at rates between 0 and 1 percent. Over the past six months, the average share of the market basket exhibiting declines has been 42 percent. Perhaps more remarkable (and illustrative of recent price softness) is that over the past eight months, the majority of items in the consumer market basket have either been rising at rates less than 1.0 percent or decreasing, on average. On the other end of the distribution, just 24 percent of the market basket rose at rates exceeding 3 percent in December, leaving just 13 percent in the broad sweet spot between 1 percent and 3 percent.

Roughly half of the overall increase in the core CPI in December was due to a 35 percent increase in used car and truck prices. The unusual strength in used car and truck prices over the past five months (up nearly 31 percent) has been somewhat of a mystery. Initially, the story read as if the CARS program negatively impacted used auto supply, driving up auction prices. However, it's hard to imagine that this is still the case. Perhaps the story now is that there has been some substitution away from new vehicles recently, possibly due to credit constraints, as some used car purchases are cash transactions. Either way, new vehicle prices slipped down 3.1 percent in December.

Although there was a slight uptick in both the short-term and longer-run average inflation expectations from the University of Michigan’s Survey of Consumer Sentiment, they still appear to be relatively “well-anchored.” One-year-ahead average inflation expectations rose from 3.0 percent to 3.3 percent in January, while the longer-run (5- to 10-year-ahead) expectations ticked up 0.2 percentage point to 3.2 percent, still well within historical norms and very close to their average over the past five years of 3.3 percent.