Article • Data Bytes
Preview: What to Look for in the December CPI

Article • Data Bytes
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In November both the overall and core CPI rose 0.3 percent. This brings their increase over the last year to 2.7 percent and 3.3 percent, respectively.
Overall inflation had been running somewhat behind core inflation over the last year, as food inflation had slowed sharply and energy prices had been dropping. However, this was not the case in November. Prices for store-bought food rose 0.5 percent. This was driven by a 1.9 percent jump in the price of meat, an 8.2 percent rise in the price of eggs, and a 1.5 percent rise in the price of non-alcoholic beverages. These price hikes are being driven by some unusual factors, such as another resurgence of the Avian flu decimating the poultry stock.
We are not likely to see the same sorts of jumps for December and some of these hikes may be at least partially reversed. As a result, inflation in store-bought food should be more modest in December. Inflation for restaurant food was 0.3 percent in December. The index has risen 3.6 percent over the last year.
The energy index rose 0.2 percent in November, with a 0.6 percent rise in gas prices being the biggest factor. Gas prices fell modestly in December. As a result, this index should be close to flat.
On net this should mean that the non-core elements again rise less than the core CPI, with the two components rising 0.1-0.2 percent for the month.
We finally saw the long-predicted slowing of rental inflation in November with both the rent proper and owners’ equivalent rent index coming in at 0.2 percent for the month. This brings their year-over-year rates to 4.4 percent and 4.9 percent, respectively. It is likely that both indexes will again come in at 0.2 percent in December.
It is interesting that the slowdown has come mostly in the South and the West. Inflation in the rent proper index was 4.0 percent in the 12 months ending in November in the South. That is down from a peak of 11.6 percent in the 12 months ending in April 2023. The index rose just 3.3 percent in the 12 months ending in November in the West. That’s down from a peak of 8.3 percent in the 12 months ending in February and March of 2023.
By contrast, rental inflation in the East for the 12 months ending in November was 5.7 percent, not much below the peak of 6.9 percent for the 12 months ending in April of 2023. In the Midwest, rental inflation was 5.9 percent for the 12 months ending in November compared to a peak of 7.4 percent in the 12 months ending in May of 2023.
There are many different factors involved here, but it is likely that the addition of more housing played a big role in slowing rental inflation in the South. Outmigration from the highest cost metro areas may be playing a role in slowing rental inflation in the West.
New vehicle prices rose 0.6 percent in November, while used vehicle prices rose 2.0 percent. They added 0.02 percentage points and 0.04 percentage points to CPI inflation for the month. Car sales have been strong since the election, and it is likely that many people are buying in anticipation of tariffs under the new administration.
Prices had been falling prior to November. We may see further price hikes for new and used vehicles in December.
The index for medical care services rose 0.4 percent in November for the second consecutive month, following a rise of 0.7 percent in September. This brought the year-over-year rate to 3.7 percent. This could be somewhat troubling since medical care services have historically been an inflation trouble spot.
However, this index has been highly erratic. It fell 0.3 percent in July and then declined a further 0.1 percent in August. We also have had big jumps in the recent past, with the index rising 0.5 percent in both November and December of 2023 before rising 0.7 percent in January of 2024. It is at least as likely we will see another reversal as a continuation of the path of high inflation.
The transportation services index was flat in November. That was an anomaly since it has risen 7.4 percent over the last year. The biggest factor was the index for auto insurance, which rose just 0.1 percent for the month. It is up 12.7 percent over the last year. Even if the pace slows from that rate, we are unlikely to see another increase as low as 0.1 percent in November.
The index for public transportation was flat in November, but it was held down by an anomalous 1.3 percent fall in the index for intracity transportation. The index for motor vehicle maintenance and repair rose just 0.2 percent in November. It rose 5.7 percent over the last year. The rate of inflation in the index had been slowing, but we will probably see a higher figure in December. On net, this index is likely to come in between 0.2-0.3 percent in December.
We will most likely see core inflation of 0.3 percent in December, with the overall inflation rate perhaps slightly lower. With rental inflation now back to its pre-pandemic pace, it will act as a major anchor for the inflation rate going forward, just as it held it up in prior months.
We are likely to see some unusual price movements, most notably in cars but possibly in other big-ticket items, as people make purchases in advance of the imposition of new tariffs. The ultimate effect of tariffs will depend on how high and how extensive they are. Since many of the tariffs will apply to intermediate goods, we likely won’t see the effect until they are actually in place.
There are problem areas like medical care which could add to inflationary pressure. Auto insurance will likely again be a major contributor to inflation in the months ahead – especially since the Los Angeles fires are likely to raise premiums substantially in some areas. We may have largely beaten the pandemic inflation, but there are plenty of new sources of inflation risks down the road.