Core Inflation Continues to Edge Higher in December

January 16, 2008 (Prices Byte)

Core Inflation Continues to Edge Higher in December

Prices Byte by Dean Baker

For Immediate Release: January 16, 2007
Contact: Alan Barber, (202) 293-5380 x115

Inflation outpaced wage growth by two percentage points over the last quarter.

The core inflation rate was 0.2 percent in December, bringing the annual rate of inflation in the core over the last three months to 2.7 percent. This is up from 2.4 percent over the last year. The inflation rate in the overall CPI was 0.3 percent, driven by a 0.9 percent jump in energy prices. Over the last three months, the overall CPI has risen at a 5.6 percent annual rate. This is more than two percentage points higher than the rate of nominal wage growth over this period. Over the last year, the CPI has risen at a 4.1 percent rate.

There was very little that can be viewed as anomalous in the December CPI. Public transportation, a core component, rose by 1.2 percent. This was driven by a 1.6 rise in airfares, which in turn was largely the result of higher fuel prices. Tobacco products, which account for 1.0 percent of the core index, rose a higher than usual 0.8 percent in December.

However, apart from these two categories, most of the other components in the core index seem to be moving in a pattern consistent with their underlying trends. The major forces pushing the rate of inflation higher continue to be medical care and education. Medical care costs rose by 0.3 percent in December. They have risen at a 5.1 percent annual rate over the last quarter and 5.2 percent for the last year. Education costs rose 0.5 percent in December, bringing the rate of increase over the last quarter to 7.7 percent, up  from the 5.6 percent rate over the last year.