The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 12/14/07 For Nov 2007 | |||||||||||||||||||||||||
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Highlights
Consumer prices, like producer prices, spiked in November, up 0.8 percent overall with the core breaking a long streak of moderate 0.2 percent gains with a 0.3 percent rise. Year-on-year prices are elevated, especially the overall rate at an unwanted 4.3 percent. The core rate is at 2.3 percent, above the 2.0 percent Federal Reserve comfort limit.
Gasoline is taking a severe bite out of the consumer's wallet, up 9.3 percent in November alone for a 37.1 percent year-on-year rate. And it's not just gasoline but also fuel oil, up 14.2 percent in the month, and electricity, up 0.6 percent. Ninety dollar oil is also reflected in transportation, up 2.9 percent in the month, and airfares, up a full 2.6 percent in the month. The Bureau of Labor Statistics warned that gas prices in December, due to seasonal adjustments, may also show pressure.
Shelter is also on the rise, up 0.3 percent for owners' equivalent rent though the year-on-year rate of 2.8 percent remains less than severe. Food is also on the rise, up 0.3 percent with apparel, which proved one of the biggest negatives in the month, jumping 0.8 percent. Pressure is very widespread including the usual culprits of education up 0.6 percent, drugs up 0.8 percent, and medical up 0.4 percent.
Vehicle prices are at least tame, up 0.1 percent for new vehicles and down 0.2 percent for used. And however bad today's report is, it's not as bad as yesterday's PPI which spiked 3.2 percent. The Fed is having to fight off inflation right at the time that growth appears to be slowing. Policy makers won't jump to any conclusions based on one month's data, but the price pressure in November was so severe and widespread that any repeat in December's data is certain to affect expectations for Fed policy. Treasury yields are rising as is the dollar in initial reaction to the report, which is likely to weigh on the stock market.
The consumer price index was a little on the high side overall due to energy costs in October with a 0.3 percent in October, which equaled the gain in September. For October, the core CPI inflation rate increased 0.2 percent, after rising 0.2 percent in each of the prior four months. Energy costs played a key role in the overall CPI increase. The core CPI was mixed in terms of component strength and weakness. Year-on-year, the overall CPI jumped to up 3.5 percent in October from 2.8 percent in September. The core rate was unchanged at 2.1 percent in October on a year-on-year basis. While the Fed will have made its latest policy decision three days prior to this CPI release, this report will start the debate over whether the Fed will cut interest rates at the FOMC meeting in seven weeks at the end of January.
CPI Consensus Forecast for November 07: +0.7 percent
Range: +0.2 to +0.8 percent
CPI ex food & energy Consensus Forecast for November 07: +0.2 percent
Range: +0.1 to +0.4 percent
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
| 2007 Release Schedule | ||||||||||||||||||||||||||
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