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First Cut: December Consumer Price Index down on energy, as expected

The December Consumer Price Index dipped 0.1% month-over-month and was up 1.9% year-over-year. The core CPI was up 0.2% from the prior month and up 2.2% compared to a year-ago. The report was dead on market expectations and for the reasons anticipated.

Energy prices were down sharply for a second month in a row. The 3.5% decline in December from November was in large part due to a 7.5% drop in gasoline prices (unadjusted down 9.9%) that was compounded by an 11.4% decrease in fuel oil. The CPI less energy only was up 0.2%. Food prices were up 0.4% for the month. The BLS said this was the largest increase since May 2014.

The FOMC will have to rely on the CPI data for the latest inflation data to assess price stability when they next meet on January 29-30. The PCE deflator was not scheduled for release until January 31 and the government shutdown means it would not be available in any case. As such, even with the softness in the energy component, inflation is still running close to the Fed’s 2% objective due to higher costs for sectors like housing and healthcare.

I note that the year-over-year 0.5% decrease in medical care commodities is probably a correction after prices spiked last year for some items like IV fluids and drugs manufactured in Puerto Rico that were in very short supply after Hurricane Maria disrupted production.

Otherwise, most prices for consumer goods and services appear to be seeing only tame changes. The push higher for motor vehicle prices has faded as the burst of buying to replace lost and damaged vehicles after the hurricanes and wildfires has abated.

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