A Look At Today's CPI Decline

The Bureau of Labor Statistics released the CPI data for November this morning. Year-over-year unadjusted Headline CPI came in at 1.76%, which the BLS rounds to 1.8%, down from 2.16% last month. Year-over year-Core CPI (ex Food and Energy) came in at 1.94% (BLS rounds to 1.9%), down from last month's 2.00%.

Here's the introduction from the BLS summary, which leads with the seasonally adjusted data:

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.

The gasoline index fell 7.4 percent in November; this decrease more than offset increases in other indexes, resulting in the decline in the seasonally adjusted all items index. The energy index fell 4.1 percent in November despite increases in the indexes for natural gas and electricity. The food index rose 0.2 percent with the food at home index increasing 0.3 percent, the same increases as in October.

The index for all items less food and energy increased 0.1 percent in November after a 0.2 percent increase in October. The indexes for shelter, household furnishings and operations, airline fares, recreation, new vehicles, and medical care all increased in November, while the indexes for apparel and used cars and trucks declined.

The all items index increased 1.8 percent over the last 12 months, a decline from the 2.2 percent figure in October. The index for all items less food and energy rose 1.9 percent over the last 12 months, slightly lower than the October figure of 2.0 percent. The food index has risen 1.8 percent over the last 12 months, and the energy index has risen 0.3 percent. More...

The Briefing.com month-over-month consensus forecast was -0.2% for Headline and 0.1% Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

On the chart below I've highlighted 2 to 2.5 percent range. Two percent has generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.

Here we see more easily the widening spread between headline and core CPI since late 2010, a pattern that began changing in October 2011 as headline inflation declined while core continued to rise, although it reversed directions earlier this year. We also see the jump in headline inflation since August owing mostly to the inevitable ripple effect of the rise in gasoline prices. With the decline in gasoline prices over the past few months, we may see the headline number continue to ease in the months ahead.

Federal Reserve policy, which has historically focused on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI is below the near-term target range of 2% to 2.5%, and the more volatile headline inflation has fallen further below target range.