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December Price Statistics

Retail price growth in December suggests that the inflation trend remains steady at around 2 to 2-1/2 percent. The Consumer Price Index (CPI) picked up for the first time in three months during December, rising 6.7 percent (annualized). Energy prices, which declined in each of the proceeding three months, jumped about 72 percent during the month. The CPI excluding food and energy prices, commonly known as the Core CPI, rose at a solid 2.3 percent annualized rate, near its 6-month and 12-month averages. Meanwhile, the median CPI and the 16% trimmed-mean CPI rose 3.5 and 2.8 percent, respectively, also in the neighborhood of their recent trends.

December Price Statistics

Percent change, last
1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2005 avg.
Consumer prices
All items 6.7 0.2 0.5 2.5 2.7 2.7
Less food and energy 2.3 1.4 2.0 2.6 2.0 2.6
Medianb 3.5 3.4 3.6 3.7 2.7 3.7
16% trimmed meanb 2.8 1.6 2.2 2.6 2.2 2.7
Producer prices
Finished goods 11.8 5.1 0.1 1.2 3.2 1.9
Less food and energy 2.3 2.3 1.3 2.0 1.2 2.2
a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; and Federal Reserve Bank of Cleveland.
CPI, Core CPI, and Trimmed-mean CPI Measures

Underlying the longer-term patterns in the retail price measures has been a widening gap between the prices of services, which have been advancing strongly, and goods prices, which have been flat (or declining). Core services, which account for over half of the overall CPI, have risen about 3.7 percent over the past 12 months - up about 3/4 percentage point from the average of the previous several years. However, core goods prices, which account for a bit over one-fifth of the overall index, were essentially unchanged over the past 12 months, roughly a 1/2 percentage point lower than the average growth between 2004 and 2005.

Core Goods and Core Services

Indeed, the CPI in 2006 exhibited a rather unusual distribution of component price changes. Over 20 percent of the items in the index, on average, posted increases that were relatively modest (20 percent actually declined), while prices for over 55 percent of the items, on average, rose at a relatively elevated rate in excess of 3 percent. It is not particularly strange that price changes in the consumer market basket would show some extreme variation, but it is unusual that so few (roughly 7 percent last year) would show an increase in the neighborhood of what is considered "average" - between 2 and 3 percent.

Average of the CPI Component Monthly Price-Change Distributions, 2006

In time, we would expect to see more concordance in the price data about where they are headed, and economists are projecting that the growth rate of the CPI will settle in at a pace a little lower than what we saw in 2006. At this point, however, the price data are not showing a very consistent reading on where the inflation momentum is headed.

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