Saturday, February 20, 2010 0 comments ++[ CLICK TO COMMENT ]++

US core CPI declines for the first time since 1982

Most of you probably saw this already but I think it may be important. As recently as three years ago, very few would have thought it was possible, but the core CPI in America actually declined in January. Like most events in the last couple of years, this was an unusual occurrence with it having occurred before in 1982—more than 25 years ago. Marketwatch provides some details:


With shelter costs dropping sharply, U.S. core consumer prices fell a seasonally adjusted 0.1% in January, the first measurable decline since 1982, the Labor Department estimated Friday.


Core prices, which exclude food and energy costs, are considered a good indicator of underlying inflationary pressures. In January, prices fell for hotel rooms, home ownership costs, new cars, airfares and clothing.

Overall, the consumer price index rose a seasonally adjusted 0.2% in January for the fifth straight month, the Bureau of Labor Statistics said. Higher energy and medical costs more than offset the largest decline in services prices since 1982. Read the full report on the BLS website.

Inflation was weaker than expected by economists surveyed by MarketWatch, who were forecasting a 0.3% increase in the overall CPI and a 0.1% gain in the core CPI


The overall CPI was up 0.2% but the core was down 0.1%. The decline was due to shelter-related components. IANAE, but like nearly all economists, I think core inflation is what matters. However, inflation is a lagging indicator so it is more of a test of one's past views than the future.

The decline is to be expected but the question is whether it will persist. Calculated Risk points out that 'owner's equivalent rent' is the biggest component of CPI and their expecation is for it to continue to decline. IMO there is also the possibility for commodity prices to decline as central banks shut off liquidity.

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