U.S. CPI Inflation Edges Up in December

The Consumer Price Index increased 0.3% m/m (3.4% y/y) in December following a 0.1% m/m (3.1% y/y) gain in November. The core index (that is excluding food and energy prices) also rose 0.3% m/m (3.9% y/y) in December versus 0.3% m/m (4.0% y/y) in November. The 3.9% y/y reading was the lowest since May 2021. The Action Economics Forecast survey had looked for a 0.2% monthly increase in the headline and a 0.3% m/m rise in the core index. While the y/y core rate declined throughout 2023, the y/y headline rate, after declining during the first half of the year, has been fluctuating in a range (3.2%-3.7%) since June.

Over the past six months, the headline index has risen at a 3.3% annual rate and the core index has increased at a 3.2% annual pace. The Federal Reserve targets a 2% rate for the PCE price index. This translates into a target of around 2-1/4% for the CPI. So, while CPI inflation is well off its recent highs reached in 2022, it remains well above the Fed’s target.

The Bureau of Labor Statistics estimated that a 0.5%m/m (6.2% y/y) increase in the price of shelter, the largest monthly gain in three months, accounted for more than half of the December monthly gain in the total CPI. Accordingly, the CPI less food, energy and shelter, another measure of core pricing power, rose 0.2% last month, the same monthly rise as in November, with the y/y rate edging up to 2.2% from 2.1%. In the 24 months prior to the pandemic, this measure averaged 1.4% y/y.

Energy prices rose 0.4% m/m (-2.0% y/y) in December after having fallen in both October and November. Gasoline prices edged up 0.2% m/m versus a 5.0% decline in October and a 6.0% fall in December. Electricity prices rose 1.3% m/m in December, their fifth consecutive monthly gain. By contrast, the price of natural gas slipped 0.4% m/m, the first decline in three months, while the price of fuel oil declined 5.5%, its third consecutive monthly decline.

Food prices increased 0.2% m/m (2.7% y/y) in December, the same monthly gain as in November. The y/y increase was the lowest since June 2021. The index for prices of food at home edged up just 0.1% m/m (1.3% y/y) in December, the same monthly rise as in November. By contrast, the prices of food away from home rose 0.3% m/m (5.2% y/y). Four of the six major grocery store food group indexes increased over the month. The index for meats, poultry, fish, and eggs rose 0.5% m/m in December, led by an 8.9% m/m increase in the index for eggs, after a 0.2% m/m decline in November.

Elevated service prices continued to lift the core CPI. Prices of commodities less food and energy were unchanged in December (+0.2% y/y). The unchanged reading in December reflected increases in prices of apparel, new vehicles (the first increase in three months) and used vehicles (the second consecutive monthly increase after five monthly declines) offset by declines in medical care commodities (the first decline in three months) and tobacco (the first monthly decline since December 2022). By contrast, prices of services less energy increase 0.4% m/m (5.3% y/y) in December, led by a 0.5% m/m (6.2% y/y) increase in shelter prices. Medical care services prices rose 0.7% m/m following a 0.6% m/m gain in November while prices of transportation services edged up 0.1% on top of a 1.1% monthly jump in November. This reflected a decline in motor vehicle repair costs but rises in airfares and motor vehicle insurance prices.

The Consumer Price figures can be found in Haver’s USECON database. The expectations figure is contained in the AS1REPNA database.