Consumer Price Index Firms, Meets Expectations

Housing and medical care costs, which together make more than half of the CPI, firmed and fed a constructive 0.3 percent rise in the ex-food and ex-energy core rate for December. This hits the high end of Econoday's estimates as does the 1.8 percent year-on-year rate. This is good news that points to strength for the Fed's core PCE price index later this month.

The housing sector has been showing general strength and is reflected in housing costs which went up a notch with a 0.3 percent December gain and with the closely watched owners' equivalent rent sub-component also up 0.3 percent. Another 0.3 percent gain comes from medical costs which are getting a lift from prescription drugs where hikes are coming on strong, up 1.0 percent following November's 0.6 percent gain.

Energy went into reverse in December, falling 1.2 percent in the month with gasoline down 2.7 percent. Food prices extended their dead flat trend with only a 0.1 percent gain in the month. When including these two components to the core, the total CPI rose a disappointing looking 0.1 percent, in a reading that of course masks the strength in housing and medical care. The yearly rate for the total CPI is down 1 tenth to 2.1 percent.

Pulling down prices once again is apparel, falling 0.5 percent following November's 1.3 percent decline. Discounting here is a likely factor behind the weak 0.3 percent December decline at clothing stores in this morning's retail sales report. Another reading of note is wireless services prices which, after two months of strength, eased back to unchanged.

This report is mixed but the core is definitely going in the right direction. When some of the wage hikes that are being announced at companies like Wal-Mart begin to kick in, the nation's inflation numbers could begin to improve.

Recent History Of This Indicator:
Gasoline prices gave a 0.4 percent headline boost to the December CPI which for this key series was an outsized gain. Other prices were flat or weaker including apparel, medical care, and housing. For December, forecasters see the overall CPI rising only 0.1 percent with the less food & energy rate at 0.2 percent. Year-on-year, the consensus gain for the CPI is 2.1 percent with the core at 1.7 percent.