Falling Car and Airfare Prices Leave Core Inflation Unchanged

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December 15, 2006 (Prices Byte)

Falling Car and Airfare Prices Leave Core Inflation Unchanged

Prices Byte by Dean Baker

For Immediate Release: December 15, 2006

Contact: Dan Beeton, 202-293-5380 x 104 

Car prices shaved 0.6pp off the core inflation rate in the last three months.

Both the overall and core (excluding food and energy) consumer price indices were unchanged in November. The consensus forecast was that both indices would show a 0.2 percent increase. The overall CPI has now fallen at a 3.9 percent annual rate in the last three months, compared to an increase of 2.0 percent over the last year. The core CPI has risen at a 1.6 percent annual rate over the last three months, down from a 2.6 percent rate over the last year.

 There were several anomalies that were important in depressing the core inflation rate for November. At the top of this list was a 0.8 percent decline in car prices. This undoubtedly reflects the large discounts that the domestic manufacturers are offering to reduce their inventories. Vehicle prices have declined at a 5.7 percent annual rate over the last quarter. This drop is likely to be partially reversed in the months ahead. (New and used vehicles account for 10.2 percent of the core index.

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