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December Price Statistics

The Consumer Price Index (CPI) rose at an annualized rate of 3.4 percent in December, down from November's 10.0 percent increase, but still slightly elevated compared to its long-term (5-year) trend. Measured over the last three months, retail prices have outpaced their 6-month, 12-month, and 5-year averages. The CPI advanced 4.3 percent in the fourth quarter, compared with 1.9 percent in the third. The CPI excluding food and energy (core CPI) increased 2.9 percent during the month, outpacing all of its longer-term trends. Both the median and 16 percent trimmed-mean CPI measures increased more than 3.0 percent in December, rising 3.2 and 3.3 percent, respectively.

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.

December Price Statistics

Percent change, last
1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2006 avg.
Consumer Price Index
All items 3.4 5.6 3.3 4.1 3.0 2.6
Less food and energy 2.9 2.7 2.6 2.4 2.1 2.6
Medianb 3.2 3.3 2.9 2.9 2.5 3.1
16% trimmed meanb 3.3 3.5 2.8 2.8 2.4 2.7
Producer Price Index
Finished goods -0.7 13.3 7.0 6.8 4.3 1.6
Less food and energy 2.2 2.2 2.0 2.1 1.8 2.1

The 12-month growth rate in the CPI ticked down to 4.1 percent in December from 4.4 in the previous month, but it is still substantially higher than August's 2.0 percent reading.
Also, the 12-month growth rates in the core CPI and the trimmed-mean inflation estimators have drifted slightly upward over the same period and are currently ranging between 2.4 percent and 2.9 percent.

CPI, Core CPI, and Trimmed-Mean CPI Measures

Almost 57 percent of the components of the CPI advanced at rates exceeding 3 percent in December, compared to a little less than 50 percent for 2007 on average. Another fact attesting to some upward price pressure from the component-price-change distribution is that only 14 percent of the index's components declined during the month, while the average over 2007 was 24 percent.

CPI Component Price Change Distributions

An example of the recent price pressures reflected in the component price change distribution is the recent trend in medical care prices. Over the past six months, medical care prices have risen at an annualized average of 5.6 percent, compared to an average monthly increase of 4.2 percent over the past 10 years. This has pushed the longer-term growth rate from 4.0 percent to 5.1 percent during the last six months.

CPI: Medical Care

Some argue that commodity prices are a leading indicator of inflation, as they measure material input costs for producers, and increases in them may eventually be passed on to retailers. The commodity spot price index, constructed by the Commodity Research Bureau, has risen 47 percent from August 2005, but the increases have been moderating lately. On a year-over-year basis, the series has fallen from 24.6 percent in June to 16.9 percent in December, with the raw materials index following a similar trend.

Commodity Spot Prices (indexed)
Commodity Spot Prices (percent change)

The 12-month growth rate in core goods decelerated throughout most of 2007 and is currently at 0.1 percent. The longer-term trend in core service prices has fallen slightly, from 3.8 percent at the beginning of the year to 3.3 percent in December.

Core CPI Goods and Core CPI Services

Looking forward, professional forecasters see inflation moderating through the first half of 2008 and trending slightly above 2.0 percent throughout 2009, but these projections were made before the release of December's CPI report. The Blue Chip panel's inflation forecast has grown more pessimistic over the past two months, and this latest CPI report may continue that trend.

CPI Forecasts

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