Higher Energy Prices Cause December Spike in CPI

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January 18, 2007 (Prices Byte)

Higher Energy Prices Cause December Spike in CPI

January 18, 2007

By Dean Baker

Near zero productivity growth will worry the Fed.

The CPI rose by 0.5 percent in December, driven by a 4.6 percent jump in energy prices. The core (excluding food and energy) CPI rose by 0.2 percent. The overall CPI has risen at 0.2 percent annual rate over the last quarter, compared to an increase of 2.5 percent over the last year. The core CPI has risen at a 1.4 percent annual rate over the last three months, down from a 2.6 percent rate over the last year.

The December jump in energy prices will be reversed in the January data, with gas and other energy prices falling back near the autumn lows. However, food prices, which were flat in December after falling by 0.1 percent in November, are likely to show some uptick in January, at least partially offsetting the impact of falling energy prices.

There were several anomalous price movements in the core index in December that were at least partially offsetting. On the high side, apparel prices rose by 0.6 percent after having fallen by a total of 1.0 percent over the previous two months. For the quarter, apparel prices have fallen at a 1.7 percent annual rate, which is more rapid than the trend rate of price decline, meaning that we should expect to see some more price increases in this component.

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