Consumer Prices Justify Rate Hike

By Jon C. Ogg Updated Jan 12, 4:43PM EST · Published Dec 15, 10:50AM EST

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Consumer Prices Justify Rate Hike — © courtesy of J.C. Penney Co. Inc.

On Thursday, the U.S. Department of Labor released its Consumer Price Index for the month of December. While the data may not look extremely hot on inflationary pressures, they support why Fed Chair Yellen and the Federal Open Market Committee raised the federal funds rate on the prior day. Whether it is inflationary enough for three rate hikes in 2017 remains to be seen.

The headline Consumer Price Index (CPI) was up 0.2% in November, versus 0.4% in October. That met the Bloomberg estimate. Furthermore, the core CPI, which excludes food and energy, was up by 0.2%, meeting the Bloomberg estimate, and up from the 0.1% gain in October.

Where the CPI readings get closer to the Fed’s 2.0% to 2.5% targeted range is in the annual readings. November’s headline CPI was up 1.7% from last November, and it was hotter than the 1.6% report from October’s year-over-year reading. The core CPI was a higher 2.1% on the same measure.

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Food prices were flat in the month of November, which is better than the deflationary pressure seen previously. Energy prices were up 1.2%, led by a faster 2.7% price gain in gasoline.

The Labor Department has also cited housing as a contributor of rising price pressure. It was up just 0.2% in November, but up 0.4% in October and in September. Rents were up 0.3% for the second straight time.
Data for food and energy were shown as follows:

The food at home index fell 0.1 percent, while the index for food away from home increased 0.1 percent. Major grocery store food group indexes were mixed in November, with four declines and two increases. The index for dairy and related products fell 0.6 percent in November after rising in September and October. The fruits and vegetables index fell 0.2 percent after rising 0.2 percent the prior month. The index for other food at home fell 0.3 percent, and the index for meats, poultry, fish, and eggs continued to fall, declining 0.1 percent. … The food at home index declined 2.2 percent over the past year, with all six of the major grocery store food group indexes falling. The index for meats, poultry, fish, and eggs posted the largest decline over the span, decreasing 6.0 percent. The index for food away from home, in contrast, rose 2.3 percent over the past 12 months.

The energy index rose in November, increasing 1.2 percent after a 3.5 percent rise in October. The gasoline index, which rose 7.0 percent in October, increased 2.7 percent in November. (Before seasonal adjustment, gasoline prices decreased 2.4 percent in November.) The electricity index was unchanged in November after rising in each of the 4 previous months. The index for natural gas, which had also increased 4 months in a row, fell 0.4 percent in November. … The energy index rose 1.1 percent over the past year, the largest 12-month increase since July 2014. The gasoline index rose 1.0 percent over the last year. The index for natural gas rose more sharply, increasing 6.2 percent, while the electricity index increased slightly, advancing 0.2 percent.

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.