March 24, 2017

Consumer Prices Surge in December

The consumer price index, which indicates inflation, rose 0.5% in December, according to statistics released today [.pdf] from the Labor Department. This is the greatest rise in consumer prices in eighteen months or June 2009, when prices rose 0.9% [.pdf]. December also marks the sixth consecutive month with an increase in consumer prices. Gasoline prices rose higher than the price of any other consumer good in December, with an increase of 8.5%. This is the greatest rise in gasoline prices in sixteen months.

In each of the last seven weeks, the average price for a gallon of gasoline has increased. As of January 10th, a gallon of gas averaged $3.14, according to the US Energy Administration. This is the highest cost for a gallon of gas throughout President Obama’s tenure.

Additionally, prices for the entire energy sector, which includes gasoline and energy utilities, increased 4.6% in December. Similarly, this is the greatest rise for all energy goods since June 2009, when all energy goods rose 7.1%.

Fluctuations in the cost of energy largely account for changes in the consumer price index, which the Labor Department estimates to be as large as 80%. This is supported with the correlation of both the consumer price index and the energy sector rising more than any month since June 2009. Also, notice in the chart below, which shows the percent change in the consumer price index throughout 2010, that April, May, and June are the only months with a decrease in the index. Correspondingly, these are also the only months in 2010 with decreases in the energy sector.

Though, December brought price increases in goods other than the energy sector. Excluding the energy sector, the consumer price index rose 0.1% in December. Airline fares increased 3.3%, which follows an increase of 3.0% in November. Fresh fruits increased for the fourth month in a row, with an increase of 3.4% in December. Hospital services increased 0.8%. The rent index also rose, albeit only 0.2%, but this accounts for about 60% of the rise when excluding energy.

These increases in the price of goods in December were partially offset by the following declines. Apparel and communication goods each fell 0.6%, recreational goods fell 0.2%, and household furnishings and used vehicles each fell 0.1%.

Lastly, it would be a surprise to see the consumer price index change directions in January. With the continual rise in gasoline prices and the energy sector, January will likely bring similar results for American consumers.

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