CPI Flat in November; Real Retail Sales up 0.5% in Boost to Q4 GDP

The consumer price index was flat in November as lower prices for food, energy and core goods offset higher prices for services. The Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices were unchanged in November after rising 0.2% in October and falling 0.2% in September. The unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, actually fell in November to 237.336, from 237.838 in October, which left it statistically 0.5% higher than the 236.151 reading of November of last year.  Regionally, prices for urban consumers have risen 1.5% in the West,  0.3% in the South, and 0.3% in the Northeast while they have fallen 0.2% in the Midwest over the past year, with greater price increases within regions in cities of more than 1,500,000 people.  Since both food and energy prices fell in November, core prices, which exclude food and energy, rose by 0.2% for the month, as the unadjusted core index rose from 243.985 to 244.075, a level 2.02% ahead of its year ago reading of 239.248.

With the release of the Consumer Price Index, the BLS also released the November report on Real Average Hourly Earnings, which indicated that inflation adjusted and seasonally adjusted hourly earnings for all employees increased by 0.1% from October to November, which resulted from a less than 0.2% increase in average hourly earnings offset by a small increase in the CPI.  Meanwhile, real average weekly earnings decreased by 0.2%, with the 0.1% increase in real average hourly earnings offset by a 0.3% decrease in the average workweek.

The seasonally adjusted energy price index fell by 1.3% in November after rising 0.3% in October and falling by 4.7% in September, as the energy index remains 14.7% lower than it was in November a year ago.  Prices for energy commodities were 2.4% lower in November while the index for energy services saw a 0.1% decrease, after increasing 0.2% in October.  The decrease in the energy commodity index was largely due to a 2.4% drop in the price of gasoline, the largest component, while fuel oil prices fell 1.3% and prices for other fuels, including propane, kerosene and firewood, averaged a 1.2% decrease.  Within energy services, the index for utility gas service fell by 1.9%, leaving utility gas priced 11.7% lower than a year ago, while the electricity price index rose by 0.3%, after it rose by 0.4% in October.  Energy commodities are still priced 24.2% below their year ago levels, with gasoline 24.1% lower priced than it was a year ago, while the energy services price index is 2.4% lower than last November, as even electricity prices have fallen 0.2% over that period..

The seasonally adjusted food index fell by 0.1% in November, after rising 0.1% in October, 0.4% in September and 0.2% in both July and in August, as prices for food at home fell 0.3% while prices for food away from home rose 0.2%, as average prices at both fast food outlets and at full service restaurants rose 0.2%.  Meanwhile, prices for all categorizes of food at home except for fruits and vegetables fell in November, with fruits and vegetables seeing a 0.6% increase on a 1.3% price increase for canned fruits and vegetables, while a 0.1% decrease in fresh fruit prices partially offset a 0.9% increase in fresh vegetable prices, led by a 4.7% increase in prices for tomatoes.  In the other food at home categories, the index for cereals and bakery products fell 0.5% on 1.0% lower priced breakfast cereals, 0.9% lower flour and mixes, and 2.2% lower cookies, while bread rose 0.4%.  Prices for the meats, poultry, fish, and eggs group fell 0.6% on a 1.4% drop in beef and veal prices and a 3.8% drop in egg prices while poultry prices rose 0.5% and fish & seafood prices averaged 0.2% higher.   The index for dairy products also fell 0.6% on 1.0% lower milk prices, while prices for cheese and related products were unchanged... The index for beverages and beverage materials was 0.5% lower on a 1.2% drop in coffee prices and 0.8% lower priced noncarbonated juices and drinks, both frozen and unfrozen.  And lastly, prices in the other foods at home category averaged 0.3% lower.  Just two food line items have seen price changes greater than 10% over the past year; egg prices remain 23.7% higher than a year ago, despite dropping 4 months in a row, while ham prices, which were down 1.8% in November, are now 13.1% lower than they were in November a year ago.  The itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

Among the seasonally adjusted core components of the CPI, which rose by 0.2% in October, the composite of all commodities less food and energy commodities fell by 0.2%, while the composite for all services less energy services rose by 0.3%.  Among the commodity components, which will be used by the BEA to adjust October retail sales for inflation in national accounts data, the index for household furnishings and supplies fell 0.3% on a 1.7% cut in prices for major appliances, a 3.2% drop in prices for clocks, lamps, and decorator items, and a 2.7% decrease in prices for dishes and flatware.  Apparel prices were also down 0.3% on a 5.0% reduction in prices for women's outerwear and 4.7% lower prices for men's suits, sport coats, and outerwear, partially offset by 2.3% higher prices for men's furnishings and a 1.8% in prices for boy's clothing.  Prices for transportation commodities less fuel were unchanged as 0.2% lower new car prices offset 0.2% higher new truck prices and a 0.7% drop in prices for car parts other than tires.  Medical care commodities, on the other hand, rose 0.3% on 0.4% higher prices for prescription drugs, while recreational commodities were 0.6% lower on a 1.7% decrease in prices for pets and pet supplies, a 1.6% decrease in prices for audio discs, tapes and other media and 1.5% lower priced TVs.  In addition, education and communication commodities fell 0.4% on a 1.9% decrease in prices for telephone hardware, calculators, and other consumer information items and a 1.2% decrease in prices for software, offset by a 0.6% increase in prices for educational books and supplies, while the index for alcoholic beverages fell 0.1%, and the index for other goods was unchanged.

Within services, the price index for shelter rose 0.2% on a 0.2% increase in rent, a 0.2% increase in owner's equivalent rent and a 1.0% increase in costs for lodging away from home, while costs for household services like water, sewer and trash collection services rose 0.4%.  Medical care services rose 0.4% on a 1.1% increase in physician's services and a 0.7% in health insurance, and transportation services rose 0.6% on a 1.4% increase in car and truck leasing and a 1.1% increase in costs for vehicle insurance while ground intercity transportation such as bus fares fell 1.6%.  Meanwhile, the recreation services index was unchanged as a 1.7% drop in film processing and a 1.5% decrease in video rentals were offset by 0.4% higher cable and satellite television service and 0.6% higher admissions to movies, theaters, and concerts.  Education and communication services were 0.3% higher on a 1.4% increase in delivery services and 0.7% higher wireless telephone services, and other personal services rose 0.2% on a 0.4% increase in haircuts and similar personal care services.  Other than the aforementioned ham and eggs and energy prices, only telephones, which were priced 13.4% lower, and televisions, which are 12.0% cheaper, saw their prices change by more than 10% over the past year...

With this release, we are now able to estimate the economic impact of last week's November retail sales report.  For the most accurate estimate, and the way the BEA figures GDP, we should take each type of retail sales and adjust it with the appropriate change in price to determine real sales.  For instance, November's clothing sales, which increased by 0.8%, should be adjusted with the price index for apparel, which was down by 0.3%, to show us that real retail sales of clothing were actually up 1.1% in November.  Then, to get GDP relevant changes, we'd have to compare those real clothing sales in November to real sales in the 3rd quarter months of July, August and September, and then repeat that for each other type of retailer, all of which is obviously quite tedious.   The short cut we usually use for a ballpark estimate is to apply the composite price index of all commodities less food and energy commodities, which was down 0.2%, to retail sales less grocery, gas station, and restaurant sales, which account for nearly 70% of the aggregate sales.  Those sales were up 0.2% in November, and since their price index was down 0.2%, real retail sales ex food and energy was up 0.4%.  For the food and energy components, grocery stores sales were up 0.8%, while prices for food at home were down 0.3%, meaning real food sales rose by 1.1% in November; sales at bars and restaurants were up 0.7% in dollars, but those dollars bought 0.2% less, so real sales of food away from home was up 0.5%.  And while gas station sales were down 0.8%, gasoline prices were down 2.4%, suggesting a solid real increase in gasoline sold as well.  Weighing the food and energy components at one third of total retail sales suggests that real retail sales were up on the order of 0.5% in November, following an October when a 0.1% increase in retail sales was boosted to real sales of 0.2% by the inflation adjustment.  Together, these suggest a strong contribution from personal consumption of goods in the advance 4th quarter GDP report, which will be released at the end of January.

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raise interest rates

I have to review why they believe that won't risk deflation, probably claiming the decrease is all about gasoliine/oil.

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goods deflation

the commodity indexes continue to bounce around 16 year lows, prices for core CPI goods are down 0.6% year over year, and PCE durable goods haven't put back to back monthly price increases together in years...meanwhile, the price index for core services is up 2.9% from a year ago

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rjs

November real retail sales actually up 1.0%

real consumption of goods rose 1.0% in November as real durables consumption rose 1.1% and real non-durables consumption rose 0.9%...a negative 0.4% deflator was applied to November goods

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