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January Price Statistics

Retail prices seemed to have spiked in January following three months of moderate monthly increases. While the Consumer Price Index rose 2.1 percent (annualized), the CPI excluding food and energy and the 16% trimmed-mean each rose 3.1 percent (annualized). Both the CPI excluding food and energy and the 16% trimmed-mean increased at rates exceeding their 12-month trends, which were between 2-1/2 and 2-3/4 percent.

January Price Statistics

Percent change, last
1 mo.a 3mo.a 6 mo.a 12 mo. 5 yr.a 2006 avg.
Consumer Price Index
All items 2.1 2.7 0.0 2.1 2.7 2.6
Less food and energy 3.1 2.0 2.2 2.7 2.0 2.6
Medianb 2.4 3.0 3.4 3.6 2.7 3.6
16% trimmed meanb 3.1 6.2 2.3 2.6 2.3 2.7
Producer Price Index
Finished goods -7.2 8.7 -0.9 0.2 3.1 1.8
Less food and energy 2.3 2.4 2.8 1.8 1.3 2.2
Personal Consumption Expenditure Price Index
All items 2.5 2.3 0.6 2.0 2.4 2.3
Less food and energy 3.1 1.8 2.2 2.3 1.9 2.2
Trimmed meanc 3.0 2.2 2.1 2.5 2.2 2.5
a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
c. Calculated by the Federal Reserve Bank of Dallas.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; the Federal Reserve Bank of Dallas; and Federal Reserve Bank of Cleveland.
CPI, Core CPI, and Trimmed-Mean CPI Measures

The January price report revealed that the cost of medical care posted its largest increase in 16 years - up 10.1 percent (annualized). According to the Bureau of Labor Statistics, this component alone accounted for about 60 percent of the acceleration in the core CPI in January, which followed a string of very favorable reports. The surge in medical care reflected a jump in prescription drugs and medical supplies, as well as a 15.1 percent climb in physicians' services. Medical care is generally a more stable component of the CPI, so its sudden surge is justifiably viewed with a little skepticism.

Medical Care Prices

Medical care, which accounts for a bit over 6 percent of the overall weighted index, was not the only component that grew at a rate exceeding the overall inflation trend: About two-fifths of the index's components grew at rates exceeding 3 percent. On the other hand, owner's equivalent rent of primary residence (OER), which is the index's single-largest component, grew at its slowest monthly rate since October 2005, rising 2.4 percent during the month. Some moderation in the OER component has been expected by analysts, as the softening of U.S. home sales (and prices) encourages greater interest in home ownership and, as a result, typically puts downward pressure on rents (which are reweighted to measure OER). However, what's curious about the moderation in OER growth is that it has happened despite a rather stubborn increase in rents. Could it be that a softer housing market is affecting only the rents of homes that are most similar to the homes people own and not the general rental market? It could, but we think that it is equally likely that the moderation of OER growth in January may be overstating the degree to which the implied cost of home ownership is actually waning.

CPI Component Price Change
Housing Prices

Meanwhile, market-based expectations for inflation over the next 10 years continue to lie in the modest range in which they have fluctuated over the past several years. Market participants anticipate that prices will generally grow between 2 and 2-3/4 percent over the next decade.

Market-Based Inflation Expectations

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