Consumer Price Index Beats Expectations

Higher gasoline prices gave a superficial boost to the CPI headline which managed to meet expectations with a 0.4 percent November gain yet when excluding energy and also food, the core comes up 1 tenth short of Econoday's consensus and inched only 0.1 percent higher. A sharp 1.9 percent monthly drop in apparel pulled down the core and also offers strong evidence of holiday discounting which hints at weakness for tomorrow's retail sales report.

But apparel wasn't the only component pulling November's core down as medical care came in unchanged in the month and housing, which represents by far the biggest share of the CPI, slowed by 1 tenth with only a 0.2 percent increase (owners' equivalent rent sub-component also up only 0.2 percent). Two other readings of note are wireless services, which were weak early in the year but have since been rebounding including a 0.3 percent rise in November, and prescription drugs which have shown more recent weakness much of which is now reversed with a 0.6 percent gain.

Gasoline prices surged 7.3 percent last month but, in what points to headline weakness for the December CPI, have since been on the retreat. Food prices were also no help to the headline, coming in unchanged with only a 1.4 percent year-on-year rate.

The overall year-on-year rate did rise 2 tenths but is still soft at only 2.2 percent while the core rate edged lower to a frustratingly low 1.7 percent. Inflation is just lying around, not getting much push from wages in what is an increasing anomaly of this expansion. Yet however soft inflation remains, the labor market appears to be at full employment which gives Federal Reserve policy makers little choice but to raise rates at today's FOMC.

Recent History Of This Indicator:
Aside from hurricane-related swings, consumer inflation has been fundamentally flat including October when the monthly rate rose only 0.1 percent while the year-on-year rate fell 2 tenths to 2.0 percent. The core, which excludes food and energy, rose 0.2 percent with this yearly rate inching up 1 tenth to 1.8 percent. Wireless service prices, which have fallen steeply this year, have been rebounding in recent months but have been offset by weak prices for vehicles. For November, forecasters see the overall CPI rising 0.4 percent with the less food & energy rate at 0.2 percent. Year-on-year, the CPI is seen rising 2.2 percent with the core at 1.8 percent.