December 2015 CPI: Inflation Continues To Grow

by Doug Short and Steven Hansen

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 0.7 % – a continuing growth of inflation beginning two months ago. The year-over-year core inflation (excludes energy and food) rate grew 0.1% to 2.1 %, and now is slightly above the target set by the Federal Reserve.

The market expected (from Bloomberg):

month over month change Consensus Range Consensus Actual CPI-U -0.2 % to 0.2 % +0.0 % -0.1 % CPI-U less food and energy 0.1 % to 0.3 % +0.2 % +0.1 %

As a generalization – inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy – and cannot be used as a economic indicator.

The major influence on the CPI was energy prices.

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.7 percent before seasonal adjustment.

The indexes for energy and food both declined for the second month in a row, leading to the decline in the seasonally adjusted all items index. The energy index fell 2.4 percent as all major component energy indexes declined. The food index fell 0.2 percent as the index for food at home decreased 0.5 percent, led by a sharp decline in the index for meats, poultry, fish, and eggs.

The index for all items less food and energy rose 0.1 percent in December, its smallest increase since August. The index for shelter continued to rise, and the indexes for medical care, household furnishings and operations, motor vehicle insurance, education, used cars and trucks, and tobacco also increased in December. However, a number of indexes declined, including those for apparel, airline fares, personal care, new vehicles, and communication.

The all items index rose 0.7 percent over the last 12 months, compared to the 0.5 percent 12 month increase for the period ending November. The food index rose 0.8 percent over the last 12 months, though the index for food at home declined. The energy index fell 12.6 percent, with all its major components decreasing. The index for all items less food and energy increased 2.1 percent over the last 12 months.