Energy prices are moving higher and are lifting the overall rate of consumer inflation, which now nearly matches the core rate (less food & energy). The CPI rose 0.3 percent in December to lift the year-on-year rate by 4 tenths to 2.1 percent. This yearly rate had been badly trailing the core rate for the past 2-1/2 years, since the oil price collapse in the summer of 2014. Now the overall rate compares with 2.2 percent for the core rate which rose a modest 0.2 percent in December.
Energy prices, up 1.5 percent in the month, posted their fourth straight strong monthly gain with the yearly rate now well above overall inflation at 5.4 percent. Medical care has been a consistent source of strength though recent readings have been fading, up only 0.2 percent in December for a yearly 4.1 percent. Housing is another area of strength, up a tangible 0.3 percent in the month and at 3.0 percent year-on-year. Owners' equivalent rent, which is a closely watched subcomponent of housing, also rose 0.3 percent.
Food prices have been soft, unchanged in December and in the negative column on the year, at minus 0.2 percent. Apparel prices, down 0.7 percent in December for a yearly minus 0.1 percent, have also been weak and help explain the low dollar sales at the nation's clothing chains during the holidays.
The coming on of energy prices is pulling up overall prices where however pressure is still moderate. This report, despite the areas of softness, will likely make uneasy reading for the inflation hawks.
Consumer prices have not been showing much traction, running just below a 2 percent yearly rate and only a little bit above 2 percent excluding food & energy. Monthly gains for both readings were only 0.2 percent in November and forecasters don't see much improvement for December, at a consensus 0.3 percent overall and 0.2 percent excluding food & energy. Low rates of consumer inflation will allow the Fed to be patient when raising rates this year.