December 07, 2021
(The monthly Consumer Price Index (CPI) is scheduled for release by the Bureau of Labor Statistics on Friday, December 10th at 8:30 AM Eastern Time.)
A relatively small number of items have accounted for much of the price increase in the Consumer Price Index (CPI) over the last year. For example, the 26.4 percent increase in the index for used cars added 0.9 percentage points to the rise in the CPI over the last year, and a 1.1 percentage point to the core inflation rate. The 9.8 percent rise in the new vehicle index added 0.4 percentage points to the inflation rate in overall CPI, and 0.5 percentage points to the core index.
The argument that the rise in the inflation rate we have seen this year will be transitory depends largely on the belief that the price increases in cars and many other durable goods will be reversed in the months ahead. The reason for soaring car prices is the well-known shortage of semiconductors. Several major manufacturers are now reporting that they are again able to produce at capacity, but it will likely be several more months before we see delivery of these cars and the market returns to something closer to normal.
We may be further along in this process with some other items. The price of televisions has been falling sharply for decades, but it turned sharply higher this year. The index rose 10.2 percent from March to August, a 26.3 percent annual rate. Since August, the index has fallen by 2.8 percent, a 15.5 percent annual rate of decline. If this turnaround continues and happens for other durable goods, we will be seeing substantially lower inflation in 2022.
It will also be interesting to see the path of energy prices. The energy index has risen by 30.0 percent over the last year, with gas up 49.6 percent. Part of the rise is because prices were depressed during the pandemic shutdowns, but the October prices were well above the pre-pandemic levels.
However, world oil prices have fallen sharply over the last month. This decline is probably too recent to show up in the energy index, but we should at least see it leveling off in November, with the price declines starting to show up in December.
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