By Dean Baker
The overall Consumer Price Index (CPI) rose 0.1 percent in January, following three consecutive months of 0.2 percent rises. This brought its increase over the last year to 2.5 percent. The core index rose 0.2 percent in January, bringing its increase over the last year to 2.3 percent. There is little evidence of acceleration in either index. The annualized rate of inflation comparing the last three months (November, December, January) with the prior three months (August, September, October) was 2.6 percent in the overall index. For the core index, the annualized inflation rate over this period was just 2.0 percent.
Health care, and especially health care insurance, are the most obvious trouble spots in this report. While the medical care index rose just 0.2 percent in January, it is up 4.5 percent over the last year. The health care insurance index, which measures only the profits and administrative costs of insurers, rose 1.7 percent in January and is up 20.5 percent over the last year. The rise in health insurance prices added 0.025 percentage points to the core inflation rate for January and have added 0.3 percentage points to the core inflation rate over the last year.
The cost of hospital services is also increasing rapidly, going up 0.8 percent in January and 3.8 percent over the last year. Prescription drug prices fell 0.4 percent this month, but that follows a 1.5 percent jump in December. They are up 2.5 percent over the last year. The CPI index only measures the change in prices of drugs already on the market. It is not affected by the introduction of new drugs, which is causing spending to rise far more rapidly.
Shelter costs continue to outpace the overall rate of inflation. The index rose 0.4 percent in January and is up 3.3 percent over the last year. The rent proper index also rose 0.4 percent for the month and is up 3.8 percent over the last year. Owners’ equivalent rent, which excludes utilities, rose 0.3 percent in January and is up 3.3 percent over the last year. The core index, excluding shelter, has risen just 1.5 percent over the last year.
The areas with the most rapidly rising rents continue to be in the West. Over the last year, rents in Los Angeles have risen 5.0 percent, in San Diego 4.1 percent, and in Phoenix, by 7.5 percent. In contrast, rent increases have been far more modest elsewhere. Rents in New York City have risen 3.0 percent over the last year, in Boston by 2.8 percent, and in Washington, DC by 2.8 percent. These increases still exceed the overall rate of inflation, but the gap is not large.
Inflation remains well contained in most other areas of the CPI. New vehicle prices were unchanged in January and are up just 0.1 percent over the year. Used vehicle prices fell 1.2 percent for the month and are down 2.0 percent over the year. Apparel prices rose 0.7 percent in January but are still down by 1.3 percent over the year. The monthly data in this category are always erratic.
The gap between the rate of increase in the food away from home and the food at home index increased somewhat in January. The rise in the former for the month was 0.4 percent, compared with an increase of just 0.1 percent in the food at home index. For the year, the rise in the two indexes has been 3.1 percent and 0.7 percent, respectively.
Energy prices fell 0.7 percent in January, but are still up 6.2 percent over the last year. World oil prices have fallen sharply in the last month, presumably associated with the drop in demand due to the coronavirus in China. If prices stay near current levels, then the CPI energy index is likely to show further drops in future months.
The January, CPI again shows no basis for concern about accelerating inflation. Rent continues to be a problem in several cities, but the pace of rental inflation is not accelerating. Health care insurance is also a major driver of inflation, but not one that is affected in any simple way by aggregate demand.