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CPI: Tame, Despite Some Big Surprises

January 12, 2023
Bottom Line: Consumer prices fell at the headline level as energy prices fell in December. As expected, core prices rose 0.3%, led by a surprisingly strong jump of 0.8% in Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI. Offsetting some of that increase were declines in used car prices and airfares. Prices of medical care services rose only slightly after two months of declines. Hospital and related services were especially strong. Services excluding rents, an indicator that Fed Chair Powell has increasingly mentioned in recent months, rose 0.4% but was still annualizing at just 1.2% in the final quarter of 2022, well below the average pace of the 2nd half of '22 of 4% annualized.
Overall, there were surprisingly large increases in OER (which should move down as it typically moves with home prices after long and variable lags) and hospital-related services (which, at least for now, appear to have seen an anomalous jump in December), but the rest of the details of this report show significant disinflation. When OER finally starts to decelerate, core inflation will be even slower than the 3.1% annualized pace seen in the last quarter of '22. ces.

FELL by 0.08% in December, compared with market expectations for a decline of 0.10%.
  • Food prices increased by 0.27% while energy prices fell by 4.5%.  
  • Prices for gasoline fell by 9.4% while prices for fuel oil declined by 11.9%, prices for electricity climbed by 1.0%, and prices for natural gas rose by 3.0%.  
  • Energy prices are now 7.0% ABOVE their year-ago level.  Overall consumer prices are now 6.4% ABOVE their year-ago level; in December 2021, consumer prices were 7.1% ABOVE their year-ago level.
The Core CPI ROSE by 0.30%, compared with market expectations for an increase of 0.30%.  
  • Prices for commodities excluding food and energy commodities fell by 0.3%.
  • Gains in alcoholic beverages (+0.5%), and apparel (+0.5%) were offset by declines in used cars & trucks (-2.5%), and tobacco (-0.1%).
  • Prices for services excluding energy services rose 0.5% with a moderate increase in shelter (+0.8%), owner's equivalent rent (+0.8%), and transportation (+0.2%).
  • Core consumer prices are now 5.7% ABOVE their year-ago level; in December 2021, consumer prices were 5.5% ABOVE their year-ago level.
Article by Contingent Macro