CPI Slipped in December


In December, a big drop in energy prices dragged down headline inflation below zero, while core inflation remained steady.

The Consumer Price Index (CPI), reported by the Bureau of Labor Statistics (BLS), declined by 0.1% in December on a seasonally adjusted basis, after being unchanged in November. The “core” CPI, which excludes the volatile food and energy components, increased by 0.2% in December, the same increase as in the previous two months (October and November). Over the past twelve months, on a not seasonally adjusted basis, the CPI rose by 1.9% in December, slower than the 2.2% gain in November; while the “core” CPI increased by 2.2% in December, the same gain as in November.

Despite the monthly volatility, the change in the CPI is highly correlated with the change in energy prices. Since 1983, every negative headline inflation reflected the drop in energy prices in the same month. In December, the price index for a broad set of energy sources dropped by 3.5%, after the 2.2% decrease in November. It was the biggest drop since February 2016 (-5.6%). Meanwhile, the food index increased by 0.4% in December, the most increase since May 2014, and the indices for shelter (0.3%), medical care services (0.4%), and recreation (0.6%) contributed to the increase in the core CPI in December. However, the sharp drop in energy prices pulled down headline inflation while core inflation held steady and the food index rose.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

The Real Rent Index was unchanged in December as the index for rent rose by 0.2%. In 2018, the monthly growth rate of the Real Rent Index was 0.1% on average, slower than the average of 0.2% in 2017.

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