Higher US Inflation Driven By Rising Fuel Prices – Analysis

Core Inflation Appears to Be Stabilizing at 2.2 Percent

By Nick Buffie*

Earlier this morning, the Bureau of Labor Statistics reported that consumer prices have risen 2.7 percent over the past year, the largest price increase since 2012. However, much of this relatively high inflation rate is just the result of rising energy prices: fuel oil has gone up 28.0 percent in price, and gas prices have gone up 30.7 percent.

The core inflation rate was just 2.2 percent over the past year. More importantly, this is consistent with data from the recent past, indicating that there is no upward trend in inflation:

Core Inflation Rates, 2016–2017

January 2015 to January 2016: 2.21 percent

February 2015 to February 2016: 2.33 percent

March 2015 to March 2016: 2.19 percent

April 2015 to April 2016: 2.15 percent

May 2015 to May 2016: 2.24 percent

June 2015 to June 2016: 2.24 percent

July 2015 to July 2016: 2.19 percent

August 2015 to August 2016: 2.32 percent

September 2015 to September 2016: 2.21 percent

October 2015 to October 2016: 2.14 percent

November 2015 to November 2016: 2.11 percent

December 2015 to December 2016: 2.20 percent

January 2016 to January 2017: 2.27 percent

February 2016 to February 2017: 2.22 percent

A large number of products actually had their prices drop over the past year. Prices for household furnishings and supplies fell 1.7 percent over the past year, thanks largely to lower furniture prices. Furniture and bedding prices are down 1.4 percent relative to February of 2016; price drops were reported for bedroom furniture, living room, kitchen, and dining room furniture, and other furniture.

Another area where prices fell was in recreation goods. Video and audio products are down 12.6 percent in price over the past year, thanks largely to a 20.1 percent drop in the price of televisions. Prices for audio equipment are down 6.9 percent, while prices for audio discs, tapes, and other media are down 4.1 percent. Recreational books fell 5.5 percent in price, while toys fell 7.8 percent in price. The prices of sports equipment went down 3.1 percent, and the costs of owning a pet also decreased (though pet food went up 0.2 percent in price).

Various transportation costs decreased as well. Notwithstanding the large increase in fuel prices, airline fares are down 1.1 percent over the last twelve months. The prices of leased cars and trucks fell 0.6 percent; the prices of car and truck rentals fell 1.7 percent; and the prices of used cars and trucks fell 4.3 percent. (This 4.3 percent decrease in the prices of used cars and trucks contrasts with a 0.5 percent increase in the prices of new cars and trucks.)

Finally, following an already-established trend, prices fell for information technology commodities. Personal computers and peripheral equipment fell 4.2 percent in price; computer prices and accessories fell 8.2 percent in price; and internet services fell 1.2 percent in price.

Much of the 2.2 percent increase in the core index can be attributed to two factors: shelter and medical care prices. Shelter costs are up 3.5 percent over the past year, while medical care services are up 3.4 percent in price. The core index excluding shelter rose just 1.3 percent over the last year.

The Import and Export indices showed relatively high rates of headline inflation, but again, these were mostly driven by rising fuel prices. Import prices rose 4.6 percent between February 2016 and 2017, but they rose just 0.5 percent if we exclude fuel prices. Core import prices rose just 0.3 percent over the last year. Export prices show a similar result — they are up 3.1 percent over the past twelve months, but core export inflation comes to just 0.8 percent. (The prices of fuel and lubricant imports went up 68.9 percent, while the prices of fuel and lubricant exports went up 40.5 percent during this time period.)

The Producer Price Index (PPI) reported an annual inflation rate of 2.2 percent, but also indicated far less inflation among core prices. The PPI indicates that energy prices rose 19.2 percent over the last twelve months but that core prices rose just 1.5 percent.

In summation, much of the reported spike in inflation is just due to rising fuel prices. Core inflation, rather than accelerating, appears to be stabilizing at a rate of about 2.2 percent.

*Nick Buffie is a Research Associate at the Center for Economic and Policy Research (CEPR) in Washington, D.C.