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CPI: Still Running Hot, Headline Hits 7%

January 12, 2022
Bottom Line: CPI rose slightly more than expected in December as the headline year-on-year figure hit 7% and core rose to 5.5%.
Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, accelerated as expected, up 0.40% on the month. OER historically lags home price moves by over a year, and the acceleration should last through the 2nd Quarter. It rose 5.2% annualized in the three months ended in November vs. 3.8% over the last 12 months and just 2.2% in 2020. And there is scope for one more month of further acceleration given the historical relationship.
Key categories that have risen sharply since the pandemic were higher again. Used car and truck prices were up sharply, 3.5% on the month. Apparel prices were also higher with fewer deals given supply constraints.
Prices related to medical care, historically the second-most important category after OER, continued to rise only modestly, as we've seen throughout much of the pandemic.
Overall, core inflation pressures remain significant. While there is scope for the pandemic-related categories to offset some of the acceleration in OER in the coming months, there are few signs of that so far, and core inflation pressures will remain significant throughout the 1st Half.
ROSE by 0.47% in December, compared with market expectations for an increase of 0.40%.
  • Food prices increased by 0.50% while energy prices fell by 0.4%.  
  • Prices for gasoline fell by 0.5% while prices for fuel oil declined by 3.4%, prices for electricity climbed by 0.3%, but prices for natural gas fell by 1.2%.  
  • Energy prices are now 29.6% ABOVE their year-ago level.  
  • Overall consumer prices are now 7.1% ABOVE their year-ago level; in December 2020, consumer prices were 1.3% ABOVE their year-ago level.
The Core CPI ROSE by 0.55%, compared with market expectations for an increase of 0.50%.
  • Prices for commodities excluding food and energy commodities rose by 1.2%. Gains in used cars & trucks (+3.5%) and apparel (+1.7%) led the increase.
  • Prices for services excluding energy services rose 0.3% with a moderate increase in shelter (+0.4%), owner's equivalent rent (+0.4%), and medical care services (+0.3%).
  • Core consumer prices are now 5.5% ABOVE their year-ago level; in December 2020, consumer prices were 1.6% ABOVE their year-ago level.