The Bureau of Labor Statistics reports that consumer prices showed little change in January. However, the costs for other goods and services increased last month. The core measurement, which includes apparel, airline fares and hotel rates, rose 1.6 percent—the biggest increase in the last 12 months.
CPI for core items
The core indicator excludes the highly volatile energy and food prices. Minus these outliers, this index climbed 0.3 percent in January. The price gains were offset by a drop in gasoline costs, which resulted in an unchanged index for all items.
The bulk of the increases for all items, excluding food and gasoline, occurred in the following components:
- New vehicles – 1.7%
- Used cars and trucks – 1.3%
- Apparel – 2.1%
- Medical care commodities – 1.5%
- Services less energy – 2.5%
- Shelter – 2.2%
- Transportation services – 3.0%
- Medical care services – 3.6%
Since January of 2012, the index for all items, minus food and energy, registered a 1.9 percent.
In January, the food index remained stable after increasing 0.2 percent each month of Q4 2012. The price increase in dairy and dairy-related products continued for the sixth consecutive month–climbing 0.4 percent in January. Prices for fruits and vegetables rose 0.3 percent and cereal and bakery products rose 0.1 percent. Prices for meats, poultry and eggs went unchanged in January.
Over the last year, the cost for food at home rose 1.1% percent compared to a 2.3% increase for food purchased away from home. Fruits and vegetables posted the largest price increase, escalating 2.9 percent.
For the third month in a row, the energy index declined— dropping 1.7 percent in January. The gasoline index fell 3.0%, capping off fourth consecutive months of declines. Fuel oil cost decreased by 0.2% for the month as well as the natural gas index, down1.7% after rising in both November and December.
Year-over-year, the energy index has fallen 1.0 percent, led by natural gas and gasoline, which declined – 2.5% and -1.5 %, respectively. In comparison, the fuel oil index increased 2.0% and the cost of electricity rose 0.5%.
The good news regarding gasoline prices will not linger long. As of February 20, the AAA motor club reports that the average cost for a gallon of gasoline increased to $3.78 compared to $3.32 per gallon in January.
FOMC plans to continue monetary policy
Based on the minutes from the Federal Open Market Committee’s (FOMC) Jan. 29-30 meeting, most FOMC members predicted that inflation will remain within its 2 percent objective over the medium period. In the meeting minutes, the Fed states that “little evidence of wage or cost pressures” exist in the current data with the exception of “isolated sectors.” Based on the data, the Fed plans to continue its efforts to reduce the 7.9% unemployment rate.
Those efforts include a continuation of its strategy of purchasing $85 billion in Treasuries and mortgage-backed securities. The Fed has yet to set duration for the bond buying program or for the total amount of purchases.
The private bank plans to keep the Federal Funds Rate–the interest rate banks charge other banks to lend them funds overnight to meet their cash reserve requirements– close to zero for as long as the unemployment rate stays above 6.5%.