CEPR

February 15, 2017 (Prices Byte)

By Nick Buffie

Excluding Energy Prices, Inflation Remains Moderate and Shows No Clear Upward Trend

The January Consumer Price Index (CPI) showed an inflation rate of 0.6 percent for the month, bringing the inflation rate in the overall index to 2.5 percent for the last year. The core index (excluding food and energy) rose 0.3 percent in January, bringing its rate of increase over the last year to 2.3 percent.

The 0.6 percent rise in January (actually 0.5506 percent if we want to be precise) was driven by a 4.0 percent jump in energy prices. However, even in the overall index, there is little evidence of acceleration in recent months. Excluding shelter costs, which rose 3.5 percent between January 2016 and January 2017, core inflation would’ve been only 1.3 percent.

The jump in energy prices appears to have worked its way into airline prices, which went up 2.0 percent during the month. However, this increase may prove temporary: airline fares are still 1.3 percent cheaper than they were in October and 3.3 percent cheaper than they were at this time last year.

The prices of new cars and trucks are up 0.9 percent over the past year thanks largely to a 0.8 percent increase last month. The costs of car and truck rentals went up quite a bit more (3.2 percent for the year), while the costs of used cars and trucks fell 3.7 percent. The prices for leased cars and trucks also fell 3.0 percent over the last 12 months.

Prescription drug prices are up 6.1 percent over the past year, while nonprescription drug prices are up just 0.1 percent. This news comes on the heels of an announcement that drug makers will be increasing the price of Emflaza from $1,200 to $89,000 after being granted “orphan drug” status by the U.S. Food and Drug Administration.

Another area of price increases came from services performed by high-end professional workers. Legal services have increased 6.6 percent in price over the last year, while the price of financial services rose 4.4 percent. Costs for checking accounts and other bank services went up 5.3 percent.

IT is one area with noticeably falling prices. Information technology commodities are down 5.0 percent in price relative to January 2016. Prices for personal computers and peripheral equipment are down 4.3 percent, while prices for computer software and accessories are down 7.8 percent.

The other price indices — the Producer Price Index and the Export-Import Price Indexes — showed relatively low rates of inflation. As with the CPI, what little inflation there was could be attributed predominantly to energy prices.

In the Producer Price Index (PPI), inflation was estimated at 1.6 percent over the past year. Interestingly, in a break from recent years, the prices for goods rose more than the prices for services (3.1 percent vs. 0.8 percent). Energy prices, which rose a full 14 percent, were responsible for much of the overall increase — excluding energy, prices were up just 1.0 percent over the last 12 months. Core inflation was just 1.2 percent.

The price indexes for both imports and exports showed similar results. Between January 2016 and January 2017, import prices rose 3.7 percent, partially reversing a 6.5 percent decrease from the previous 12 months. This was entirely due to the cost of fuel imports, which rose 57.6 percent in price; by contrast, there was no reported change in the price of nonfuel imports. The prices of exports went up 2.3 percent, also partially reversing the previous year’s decrease of 5.9 percent. Excluding foods and fuels, there was no measured change in export prices.

These data indicate that, despite the high headline inflation over the past month, the general trend in prices is far steadier. Moreover, much of the short-term increase in prices can be attributed directly to rising energy costs, which are infamously volatile. Correcting for these factors, we see that inflation is relatively low and shows no clear upward trend.