November Consumer Price Index

 Benign Inflation Reports Add to Better Economic News

  • The November Consumer Price Index was unchanged for the month, and up 3.4 percent over the year.
  • The core CPI gained 0.2 percent in November, and is up 2.2 percent over the last year.
  • The Energy Price Index dipped by 1.6 percent as gasoline prices fell by 2.4 percent for the month.
  • Apparel prices gained 0.6 percent and medical services were up by 0.5 percent, adding to core inflation.

U.S. economic data hrough the end of 2011 shows an economy that is getting steadier after a shaky journey through most of the year. Yesterday’s producer price report for November and today’s consumer price report for November show that price pressure, largely from elevated commodity prices early in the year, is easing. This comes at a time when labor market data is improving, and households are feeling confident enough to start unleashing some pent-up demand, held in check now for the past four years. Easing inflation gives the Federal Reserve a little more maneuvering room as it debates another round of quantitative easing and the potential drag from a Euro-zone melt down; it also gives households a break by increasing purchasing power. Real disposable incomes will start to increase after being held in check for most of 2011. Easing inflation is especially welcome news to retirees, living on fixed incomes and earning paltry interest rates on their nest eggs.

The headline Consumer Price Index for November was unchanged for the month, after dipping by 0.1 percent in October. Over the past 12 months the CPI is up 3.4 percent and is now trending down. Core CPI (all items less food and energy) is still trending up in year-over-year comparisons. Core CPI increased by 0.2 percent in November and is up by 2.2 percent over the past 12 months. Core CPI is heavily weighted toward housing, which in turn is driven by rents, not house prices. Housing rental rates are increasing as vacancy rates decline. Crude oil prices, now just below $94 per barrel, are about where they were at the start of 2011, after they surged through the end of last April. With global macroeconomic conditions cooling, and energy supplies plentiful, it looks like we will have at least flat energy prices through the first quarter of 2012. This will give us very favorable year-over-year energy price comparisons over the next few months. All bets are off if the Middle East heats up again. Fortunately, increased energy efficiency in this country, plus the development of significant new energy reserves throughout the world reduces the potential impact of disruptions to the flow of Middle Eastern oil. Shale is ubiquitous. New drilling and production technology is a game changer for global energy supplies in the decades ahead. The integration of natural gas into a broad range of energy applications will write a new chapter for U.S. energy supply and global energy prices…eventually.

Market Reaction: Equities opened with gains. Treasury yields are falling at the long end of the yield curve. Oil is down to $93.80/barrel. The dollar is down against the yen and the euro.


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