Econoday Economic Report: Consumer Price Index January 16, 2009

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Consumer Price Index

Released On 1/16/2009 8:30:00 AM For Dec, 2008

	Prior	Consensus	Consensus Range	Actual
CPI - M/M change	-1.7 %	-0.9 %	-1.5 % to -0.4 %	-0.7 %
CPI - Y/Y change	1.0 %	-0.2 %	-0.8 % to 0.2 %	-0.1 %
CPI less food & energy	0.0 %	0.1 %	-0.1 % to 0.2 %	0.0 %
CPI less food & energy - Y/Y change	2.0 %	1.9 %	1.7 % to 1.9 %	1.7 %

Highlights
In December, consumer inflation continued downward. The impact of lower energy prices has been profound as headline inflation fell for the fifth month in a row. The headline CPI fell 0.7 percent in December, following a 1.7 percent decrease in November. Meanwhile, core CPI inflation was unchanged after no change the month before.

For the latest month, energy plunged a monthly 8.3 percent, with gasoline prices falling 17.2 percent. Food posted a 0.1 percent decrease.

The core was kept soft by several key components. Apparel fell 0.9 percent in December, reflecting discounting by retailers to move merchandise over the holidays. New and used vehicles dropped 0.4 percent. Lodging away from home slipped 0.7 percent as consumers are not traveling much now days. Owners’ equivalent rent edged up only 0.1 percent.

Year-on-year, headline inflation is down 0.1 percent (seasonally adjusted) in December from 1.0 percent in November while the core is up 1.7 percent, compared to up 2.0 percent in November.

The latest CPI report shows weak demand pulling down oil and gasoline prices and even spreading to core prices. The good news is that for those still employed, real earnings are up. For those unemployed, weak prices are a sign of continuing recession – not a good thing.

Market Consensus before announcement
The consumer price index in November fell for the fourth month in row due to lower energy costs. The headline CPI dropped 1.7 percent in November, following a 1.0 percent decrease in October. September is reported as no change but before rounding the CPI edged down incrementally. Meanwhile, the core rate in November was unchanged and followed a 0.1 percent outright decline in October. Keeping the core rate soft were declines in lodging while away from home, new and used vehicles, and in public transportation (which includes airline fares). For the latest month, energy fell a monthly 17.0 percent, pulled down by a 29.5 percent plunge in gasoline prices.

CPI Consensus Forecast for December 08, m/m: -0.9 percent
Range: -1.5 to -0.4 percent

CPI Consensus Forecast for December 08, y/y: -0.2 percent
Range: -0.8 to +0.2 percent

CPI ex food & energy Consensus Forecast for December 08, m/m: +0.1 percent
Range: -0.1 to +0.2 percent

CPI ex food & energy Consensus Forecast for December 08, y/y: +1.9 percent
Range: +1.7 to +1.9 percent

Definition
The Consumer Price Index is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. That is the index shows the change in price levels since the index base period, currently 1982-84 = 100. Monthly changes in the CPI represent the rate of inflation. Why Investors Care

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations.
Data Source: Haver Analytics

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI.
Data Source: Haver Analytics

2009 Release Schedule

Released On: 1/16 2/20 3/18 4/15 5/15 6/17 7/15 8/14 9/16 10/15 11/18 12/16

Release For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov