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February Price Statistics

The CPI increased somewhat unexpectedly in February, rising at an annualized rate of 4.8 percent, following a 3.4 percent gain last month. According to the release, roughly two-thirds of the headline increase was due to a jump in gasoline prices (up 8.3 percent nonannualized). The CPI excluding food and energy (core CPI), increased 2.3 percent during the month, outpacing all of its longer-term trends (3-,6-,12-,60-month percent changes).

The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends, the median CPI and the 16-percent trimmed-mean CPI, rose 2.3 percent and 2.5 percent, respectively. Outside the jump in gas prices, the price index for new vehicles curiously spiked up 10.1 percent (annualized rate), its largest monthly increase since November 2004. Also, every subcategory of the apparel price index (except infant and toddler apparel) rose in excess of 8.0 percent during the month, which may suggest that some retail prices are starting to rebound after deeper-than-normal discounts over the holiday season. Given the relatively weak spending environment, its seems hard to view these price changes as anything other than transitory.

February 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 4.8 −0.5 −5.0 0.2 2.6 0.3
  Less food and energy 2.3 1.5 1.1 1.8 2.2 1.8
  Medianb 2.3 2.1 2.3 2.8 2.8 2.9
  16% trimmed meanb 2.5 1.7 1.3 2.6 2.6 2.7
Producer Price Index
  Finished goods 1.4 −3.7 −11.9 −1.6 3.3 0.2
  Less food and energy 2.8 3.6 3.5 3.9 2.5 4.3
  1. Annualized.
  2. Calculated by the Federal Reserve Bank of Cleveland.

Sources: U.S. Department of Labor and Bureau of Labor Statistics.

Even with February’s jump, the CPI is still up only 0.2 percent over the past 12 months. The 12-month growth rates of all the core measures ticked up in February and are now ranging between 1.8 percent and 2.8 percent. Since last July, the 12-month growth rate in the core CPI and the 16 percent trimmed-mean CPI have fallen appreciably, while the median CPI has seen only a 0.4 percentage point decrease in its growth rate.

CPI, Core CPI and Trimmed-Mean CPI Measures

An investigation into the price-change distribution revealed that roughly 27 percent of the consumer market basket (by expenditure weight) increased at rates exceeding 5.0 percent in February, compared to 15 percent in January and an average of 24 percent during 2008. Roughly 27 percent of the weighted overall index exhibited price gains greater than 5.0 percent in February, more than double the percentage over the three months prior. That discrete change in the upper tail of the distribution, combined with a break between that tail and the rest of the distribution, suggests those gains may be transitory.

CPI Component Price Change Distributions

Further evidence of fleeting relative price changes is the 4.9 percent spike in core goods prices during February, their largest jump in nearly 10 years. Over the past 12 months, core goods prices are still slightly negative, at −0.04 percent. A more stable trend has developed in core goods prices, which have risen less than 2.0 percent in four of the past five months, compared to their average monthly increase over the past five years of 3.1 percent.

Core CPI Goods and Core CPI Services

Longer-term (5-10 years ahead) average inflation expectations slipped 0.6 percentage point to 2.9 percent in March. Also, one-year-ahead average inflation expectations have drifted lower than the longer-term expectations recently and stand at 2.4 percent currently. According to the University of Michigan’s release, “During the past five months, on average 18 percent (of respondents) expected outright deflation in the year ahead and another 25 percent expected a zero inflation rate; in the comparable period one year ago, just 4 percent expected deflation and 3 percent a zero inflation rate. Overall, there has not been another period in the past quarter century that deflation was more widely anticipated.”

Household Inflation Expectations

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