By David Rosnick
Though core inflation is largely unchanged, the rise in commodity prices has slowed while that of services has accelerated.
The Consumer Price Index rose 0.2 percent in January as energy prices rose for the first time since September. Over the last three months, headline inflation has run at a 1.2 percent annualized rate. Inflation in food prices has run a bit faster than other categories, rising at a 2.1 percent annualized rate over that time. However, food prices have grown more slowly in recent months than they had previously—running 4.4 percent in the three months prior, and 4.1 percent from April to July.
Excluding food and energy, prices rose 0.2 percent last month and at a 2.2 percent annualized rate since October. Though the rate of core inflation is largely unchanged in recent months, there has been some shift in the source of inflation. Largely, inflation in core commodity prices has slowed while those of services have accelerated. Since April, the latter has accelerated from a 2.1 three-month annualized rate of inflation to 2.7 percent; the former has fallen from 4.8 percent to 0.7 percent.
The price of new vehicles was essentially unchanged from December to January, but the slight fall (0.5 percent annualized rate) represented the fifth-consecutive month of decline. Public transportation prices have also fallen since October at a 3.4 percent annualized rate. Airline fare accounts for much of this category, and airfares are highly responsive to changes in energy prices.
Housing prices rose 0.1 percent as household energy prices fell 0.4 percent. Rent and owners' equivalent rent each rose 0.2 percent. In the last nine months, owners' equivalent rent has risen at a steady 2.1 percent annualized rate—much more in line with the price increases of the last decade than seen those seen during the recession. With owners' equivalent rent accounting for more than 40 percent of non-energy services, its return to price increases accounts for much of the acceleration in service inflation.
Apparel prices jumped 0.9 percent last month and at a 5.5 percent annualized rate since October. However, apparel prices are always volatile and large changes are often soon reversed.
Medical care prices rose 0.3 percent, including a 0.6 percent jump in medical care commodities. Medical care services rose 0.2 percent in January and at a 4.1 percent annualized rate over the last three months, but this story is mixed. Professional medical services have grown at a more modest 1.1 percent annualized rate, while hospital services have grown at a 5.0 percent rate over the last three months.
The Producer Price Index for finished goods rose 0.1 percent in January and at a 0.8 percent annualized rate over the last three months. Falling for the fourth consecutive month, energy prices kept overall inflation low. However, core prices rose 0.4 percent in January—modest, yet the fastest rate since July. The three-month annualized rate of inflation in core finished goods rose to 3.2 percent.
The story looks very different at earlier stages of production. Intermediate goods prices fell 0.4 percent, but core intermediate goods prices fell as well. With the 0.1 percent fall in January, the index of prices in core intermediate goods has not risen since July. It now stands only 1.4 percent above a September 2008 peak—a 0.4 percent annualized rate of inflation over those 40 months.
A 1.6 percent jump in both crude food and crude energy producer prices in January led to a 1.5 percent increase in the overall index of crude producer prices, reversing a 1.5 percent fall in December. Core prices jumped 0.6 percent after three months of declines. Despite a 73 percent increase in core crude producer prices since March 2009, they are unchanged over the last year.
Import prices rose 0.3 percent last month, and export prices rose 0.2 percent. Excluding volatile food and fuels, trade prices have fallen in recent months. Respectively, core import prices have fallen at a three-month annualized rate of 0.4 percent, while core export prices have declined at a 2.3 percent rate over the same period. In part, this decline may be due to a 4.8 percent rise in the real broad dollar index since July, when this index reached its lowest level on record going back to 1973.
With no pressure coming from earlier stages of production or from trade, there continues to be little concern for additional core inflation. There may be continued volatility—particularly in energy prices—but with the real hourly wage unchanged in January and down 0.1 percent over the last nine months, the recent acceleration in core inflation is unlikely to persist.