US CPI CORE CONTINUES TO DECELERATE
By Denny Gulino
WASHINGTON (MktNews) - The U.S. Consumer Price Index, up 0.3% overall in August, showed a core rate that continues to decelerate from last year, up 1.6% at an annual rate so far this year, the Bureau of Labor Statistics reported Wednesday morning.
"The core rate has been remarkably well behaved, mostly because of apparel," senior BLS analyst Patrick Jackman said.
Notable among the major categories, apparel costs dropped for the fourth month, falling 0.3% in August. But seasonal increases are expected to reassert themselves in the next two months.
Without the August declines in airline fares (-2.7%) and tobacco (-1.3%), the core rate would have been about a tenth of a percent higher, Jackman told Market News International as the report was being made public.
While the overall CPI index is "up faster than last year, with a 2.6% seasonally adjusted annual rate for eight months, the core has actually slowed down, with a 1.6% versus 2.4% last year" through August. "And food is slightly less (annually), so the whole reason for the acceleration overall is the energy component, up 15.4% so far this year at an annual rate," Jackman said.
Already baked in for September are the wholesale price increases for tobacco's major cigarette brands, which are likely to also find their way into the CPI, and the nickel a gallon gasoline price hike that is in place for September.
"What ticked the core up last month took it down this month," Jackman said. "Airlines and tobacco had been up fairly sharply last month ... and those things both turned down. You have some anticipation of tobacco going up (in September) with price hikes across the industry."
Airline fares, which leaped 6.5% in July, declined 2.7% in August. Tobacco, which was up 3.3% in July, fell 1.3% in August, reflecting a 1.8% decline in cigarettes.
"I guess the 'all items' category would still have rounded to an up 0.3 without the declines in airlines and tobacco," Jackman said, but "the core probably would have been 0.2% without that deceleration."
Apparel benefited from not having a strong seasonal adjustment factor for the August month, Jackman said, just a 0.5% expectation. "The introduction of fall-winter wear shows up in September and October numbers and some of that is showing up here (in August) but in August, some of that is offset by discounts."
"The introduction of fall wear increases the price, but you have closeouts in spring-summer wear with an overall seasonal that is small," he said. "Next month, the seasonal expects a 2.3% increase. With this month's seasonal only 0.5%, the unadjusted 0.2% rise became a down 0.3. There hasn't been any price pressure in apparel for some time."
Next month "you've got the continued increase in petroleum-based energy prices," he said. "Department of Energy data show September numbers will also show an increase, according to the first two weeks' data -- another nickel a gallon increase in gasoline." Otherwise, he said, tobacco prices will reflect the already announced cigarette increase.
New car prices slipped 0.1% in August, but the index for new and used cars rose a tenth. Overall for the past 12 months new car prices are down 1% while used cars and trucks are up 1.8%. "Car prices have been very benign for the last three years," Jackman said.
Medical care, up a strong 0.4% in August, is up 3.4% for 12 months. After bottoming out in October '97, medical costs have "clicked up into the 3.3%-3.5% range and that's where it has stayed more or less," Jackman said.
The tobacco price path has been primarily governed this year by "market strategy, where they've been discounting major brands, vying for market share," he said. "They put it on in some markets then take off, and when they take it off, prices go up in the CPI. Beginning in September there is an announced wholesale price increase, but tobacco is only about 1% of the overall CPI."
In a broader perspective, the BLS is preparing for the next big change in the CPI methodology, the so-called superlative index, which will reflect substitution of buying choices at the upper levels, Jackman said.
Expectations in a Market News International survey of economists centered on a rise of 0.3% in the August CPI overall, and a 0.2% increase in the core rate. |
