Econoday Economic Report: Consumer Price Index February 15, 2017

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Consumer Price Index

Released On 2/15/2017 8:30:00 AM For Jan, 2017

	Prior	Consensus	Consensus Range	Actual
CPI - M/M change	0.3 %	0.3 %	0.2 % to 0.4 %	0.6 %
CPI - Y/Y change	2.1 %			2.5 %
CPI less food & energy- M/M change	0.2 %	0.2 %	0.2 % to 0.3 %	0.3 %
CPI less food & energy - Y/Y change	2.2 %			2.3 %

Highlights
There was pressure in yesterday's producer price report and there's pressure in today's report on consumer prices. The CPI rose 0.6 percent vs the Econoday consensus for only 0.3 percent and a top estimate of 0.4 percent. This is the strongest showing in nearly 4 years. The core rate (less food & energy) shows less heat but is still on the high end, at plus 0.3 percent which hits the top estimate.

Energy, up 0.4 percent on the month which includes a 7.8 percent jump in gasoline prices, skewed the headline higher, but gains in the report are nevertheless broad based especially for apparel, new vehicles, and household furnishing. Housing is up a tangible 0.3 percent for a second month with medical care, however, up a moderate 0.2 percent.

The headline year-on-year rate, reflecting easy energy comparisons with 2016, is moving higher, well above the Fed's general 2 percent target at 2.5 percent. This is up 4 tenths in the month and is the highest in nearly 5 years. The core rate is also up, at a year-on-year 2.3 percent for a 1 tenth gain.

Wage inflation has yet to kick in but if it does, and it may given the strength of employment, an inflationary flashpoint may be at hand. This report, together with this morning's solid retail sales report and strong Empire State data, will no doubt raise talk of a March FOMC rate hike.

Consensus Outlook
Consumer prices have been edging slowly higher though the overall year-on-year rate, due to easy comparisons against weak energy prices this time last year, has been accelerating. Forecasters see January's monthly rate rising a tangible 0.3 percent with the core rate (less food & energy) edging 0.2 percent higher.

Definition
The Consumer Price Index is a measure of the change in 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 for the consumer. Annual inflation is also closely watched.

The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group, representing about 87 percent of the population. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.

The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board. Why Investors Care

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.
Data Source: Haver Analytics

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.
Data Source: Haver Analytics

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