December 2018 CPI: Year-Over-Year Inflation Rate Moderates To 1.9%

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.9 % year-over-year (lower than the 2.2 % last month). The year-over-year core inflation (excludes energy and food) rate was unchanged at 2.2 %, and continues to be above the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Energy was the main driver for the year-over-year decline. Core inflation remains above 2.0 % year-over-year. Medical cost inflation continues to outpace the CPI-U.

The market expected (from Econoday):

  Consensus Range Consensus Actual
CPI-U - month-over-month (MoM) -0.2 % to +0.2 % -0.1 % -0.1 %
CPI-U year-over-year (YoY) +1.8 % to +2.2 % +1.9 % +1.9 %
CPI less food & energy (MoM) -0.2 % to +0.2 % +0.2 % +0.2 %
CPI less food & energy (YoY) +2.1 % to +2.3 % +2.2 % +2.2 %

z cpi1.png

As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator.

The major influence on the CPI was energy.

The seasonally adjusted decline in the all items index was caused by a sharp decrease in the gasoline index, which fell 7.5 percent in December. This decline more than offset increases in several indexes including shelter, food, and other energy components. The energy index fell 3.5 percent, as the gasoline and fuel oil indexes fell, but the indexes for natural gas and for electricity increased. The food index increased 0.4 percent in December. The index for all items less food and energy increased 0.2 percent in December, the same increase as in October and November. Along with the index for shelter, the indexes for recreation, medical care, and household furnishings and operations all increased in December, while the indexes for airline fares, used cars and trucks, and motor vehicle insurance all declined. The all items index increased 1.9 percent for the 12 months ending December; this was the first time the 12-month change has been under 2.0 percent since August 2017. The index for all items less food and energy rose 2.2 percent over the last 12 months, the same increase as for the 12 months ending November. The food index rose 1.6 percent over the past year, while the energy index declined 0.3 percent.

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