January Headline Consumer Price Index At Its Lowest Since October 2009

February 26, 2015

by Doug Short

The Bureau of Labor Statistics released the January CPI data this morning. Year-over-year unadjusted Headline CPI came in at 0.09% (rounded to 0.1%), down from 0.76% (rounded to 0.8%) the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.65% (rounded to 1.6%), up from the previous month's 1.61% (but unchanged to one decimal). The non-seasonally adjusted month-over-month Headline number was down -0.47% (rounded to -0.5%), and the Core number was up 0.20%.

The January headline number was the lowest since the eight-month deflationary period that ended in October 2009.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.7 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index decreased 0.1 percent before seasonal adjustment.

The energy index fell 9.7 percent as the gasoline index fell 18.7 percent in January, the sharpest in a series of seven consecutive declines. The gasoline decrease was overwhelmingly the cause of the decline in the all items index, which would have risen 0.1 percent had the gasoline index been unchanged. The fuel oil index also fell sharply, and the index for natural gas turned down, although the electricity index rose. The food index was unchanged in January, with the food at home index falling for the first time since May 2013.

The index for all items less food and energy rose 0.2 percent in January. The shelter index rose 0.3 percent, and the indexes for personal care, for apparel, and for recreation increased as well. The medical care index was unchanged, while an array of indexes declined in January, including those for household furnishings and operations, alcoholic beverages, new vehicles, used cars and trucks, airline fares, and tobacco.

The all items index declined 0.1 percent over the last 12 months, the first negative 12-month change since the period ending October 2009. The energy index fell 19.6 percent over the span, with the gasoline index down 35.4 percent. The food index rose 3.2 percent, and the index for all items less food and energy increased 1.6 percent.   [More…]

Investing.com was looking for a -0.6 decline in Headline CPI and a 0.1% rise in Core CPI. Year-over-year forecasts were -0.1% for Headline and 1.6% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range, which the Federal Reserve currently targets for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

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The next chart shows both series since 1957, which was the first time the government began tracking the core inflation metric.

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In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) were in place.

Federal Reserve policy, which has historically focused on core inflation as measured by the core PCE Price Index, will see that the more familiar core CPI has reached the PCE the target range of 2 to 2.5 percent.

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