December 2019 CPI: Year-Over-Year Inflation Rate Increases To 2.3%

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 2.3 % year-over-year (up from the reported 2.1 % last month). The year-over-year core inflation (excludes energy and food) rate was unchanged at 2.3 % and remains above the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Gasoline, shelter, and medical were the main reasons for the increase in this index. Medical care services cost inflation was unchanged at 5.1 % year-over-year.

The market expected (from Econoday):

  Consensus Range Consensus Actual
CPI-U - month-over-month (MoM) +0.1 % to +0.3 % +0.3 % +0.2 %
CPI-U year-over-year (YoY) +2.3 % to +2.6 % +2.3 % +2.3 %
CPI less food & energy (MoM) +0.2 % to +0.2 % +0.2 % +0.1 %
CPI less food & energy (YoY) +2.3 % to +2.4 % +2.3 % +2.3 %

As a generalization - inflation accelerates as the economy heats up, while the 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 an economic indicator.

The major influence on the CPI was energy, medical care, and shelter.

The indexes for gasoline, shelter, and medical care all rose in December, accounting for most of the increase in the seasonally adjusted all items index. The gasoline index increased 2.8 percent in December. Other major energy component indexes were mixed, and the energy index rose 1.4 percent. The food index rose 0.2 percent in December with the indexes for both food at home and food away from home increasing over the month.

Historically, the CPI-U general index tends to correlate over time with the CPI-U's food index. The current situation is putting upward pressure on the CPI.

CPI-U Index compared to the Food sub-Index of CPI-U

Notice the gap in the above graphic between the CPI and Food - historically this gap has always closed when the knock-on effect from higher food prices into other CPI components moderates.

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