By Denny Gulino
WASHINGTON (MaceNews) – The November Consumer Price Index report, largely dismissed Wednesday as a ho-hum confirmation of price pressure stasis, nevertheless contained some hints as to what may be ahead, a slowly gathering upwelling of costs concentrated in housing and transport.
The annualized core items index rose 2.3% through November, a duplicate of its acceleration in October and the biggest reassurance that nothing much important is happening on the inflation front. The fact the Federal Reserve pays much more attention to the lagging personal consumption expenditures measure adds to the comfortable view that inflation hawks remain an endangered species.
Yet the comfort may be somewhat misplaced. The real momentum in the CPI is carried by shelter, with a little more than 34% of the CPI’s overall weight and with an even larger role to play in the core index.
Seldom showing any precipitous jumps, with any volatility mainly coming from its vacation-lodging component, the shelter index in the CPI works as a heavy flywheel, its energy derived indirectly from the long trend of rapidly rising home prices and stiffening rents.
The shelter index is up 3.3% over the 12 months through November, a percentage point above the annualized core index and an upward pull on the overall index running at 2.1%.
It’s the countering force of an ever changing variety of other smaller and more short-cycle CPI components that keep the consumer inflation index in check month after month.
The steady upward force of shelter that so dominates the CPI is not as isolated from the PCE measure as it appears on the surface, filtering in through other price conduits that indirectly influence the U.S. pattern of overall consumption.
Another major category of U.S. longer-cycle spending is transportation and in November, as in three prior months, new car prices have declined. When paired with motor fuel, the weighting is .nearly 8% of the total, a not insignificant chunk of the CPI. New-car prices have been nearly motionless for a year, slipping a scant 0.1% in the CPI as production lines adjust to a somewhat slower sales pace.
But the costs of producing new cars, with their myriad new safety and fuel-saving features, are going up as margins shrink, and a rebound in prices could well be in the works that doesn’t subside, carrying used car prices – also down for the year – up with them, a trend that seems to be taking hold in the last three months of price increases there.
A CPI surge any time soon? Not likely, but for the above and other factors in play, the base price level could be solidifying, a gradually strengthening foundation that could support an inching up of consumer inflation later in the decade.