Magazine article Economic Trends

What Can We Glean from October's Report on Retail Prices?

Magazine article Economic Trends

What Can We Glean from October's Report on Retail Prices?

Article excerpt


October Price Statistics

                                    Percent change, last
                     1mo.     3mo.     6mo.   12mo.    5yr.     2011
                      (a)      (a)      (a)             (a)  average

Consumer Price

All items             1.8      5.4      2.3    2.2      2.1      3.0

Excluding food        2.2      1.5      1.8    2 1      1.7      2.2
and energy (core

Median (b)            2.3      2.5      2.2    2.2      1.9      2.6

16% trimmed           1.7      2.1      1.8    1.9      1.9      2.6
mean (b)

Sticky CPI            2.4      2.1      2.1    2.2      1.9      2.1

Sticky CPI            1.9      1.5      1.9    2.2      2.2      2.3
shelter (c)

(a.) Annualized.

(b.) Calculated by the Federal Reserve Bank of Cleveland.

(c.) Author's calculations.

Source: Bureau of Labor Statistics.

The CPI rose at an annualized rate of 1.8 percent in October, as gasoline prices posted a modest decrease and general price pressure elsewhere in the retail market basket was fairly tame (though rents did post sizeable increases). On a year-over-year basis, the CPI is up 2.2 percent.

The "core" CPI, which excludes food and energy prices, rose 2.2 percent during the month, outpacing its near-term (three-month) growth rate of 1.5 percent, though it came in relatively close to its year-over-year growth rate of 2.0 percent. Measures of underlying inflation produced by the Federal Reserve Bank of Cleveland, the median CPI and 16 percent trimmed-mean CPI, rose 2.3 percent and 1.7 percent, respectively. Over the past year, the median is up 2.2 percent, while the trimmed-mean is up 1.9 percent. However, there does appear to be an upward nudge on October's data, stemming from rising shelter costs, which may be more indicative of a relative price change in housing prices than an indication of inflation.

Shelter prices jumped up 3.2 percent in October, their sharpest monthly increase since March 2008. A significant chunk of this was rent of primary residence, which spiked up 5.1 percent in October, well above its 12-month trend of 2.8 percent. Also, owners' equivalent rent (OER) rose 2.6 percent in October and has risen 2.8 percent over the past three months, accelerating over its 12-month growth rate of 2.1 percent. Shelter costs comprise a little over 30 percent of the market basket (with OER accounting for roughly 25 percent alone) and have the propensity to influence the measured underlying inflation trend.

As evidence of OER's, perhaps undue, influence on our read of inflation in October, excluding it from the median CPI calculation pulls the increase in the median CPI down from 2.3 percent to a mere 0.4 percent. This large a difference between the median CPI with and without OER is a marked shift from recent months. Over the prior three months, the difference is only 0.2 percent. Moreover, the median CPI with or without OER is up 2.2 percent over the past year, suggesting that relative price changes in OER haven't clouded our perception of underlying inflation yet.


In fact, over the past 12 months, nearly every inflation indicator we track is trending within a few tenths of a percent of each other. …

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